ARCHIVED - Transcript, Hearing 23 June 2011
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Volume 4, 23 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
23 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
23 June 2011
- iv -
TABLE OF CONTENTS
PAGE / PARA
23. Cogeco Cable Inc. (int. #72) 738 / 4189
24. Canadian Media Guild and Canadian Association of Community Television Users and Stations (CACTUS) (int. #47) 824 / 4650
25. Communication, Energy and Paperworkers Union of Canada (int. #70) 833 / 4693
26. Canadian Broadcasting Corporation (int. #51) 867 / 4890
27. EastLink (Bragg Communications Inc.) (int. #67) 900 / 5117
28. Canadian Cable Systems Alliance Inc. (int. #21) 940 / 5355
29. Cable Cable Inc. (int. #11) 948 / 5407
- v -
PAGE / PARA
Undertaking 823 / 4638
Undertaking 894 / 5069
Undertaking 964 / 5510
--- Upon commencing on Thursday, June 23, 2011 at 0900
4182 THE CHAIRPERSON: Good morning. Bonjour.
4183 Madame la Secrétaire, commençons.
4184 LA SECRÉTAIRE: Merci, Monsieur le Président.
4185 For the record, WOW TV, intervenor 34, and Canadian Media Production Association, intervenor 35 on the agenda, have advised the Commission that they will not be appearing at the hearing.
4186 Mr. Chairman, we will begin today with the presentation by Cogeco Cable Inc.
4187 Please introduce yourselves, after which you will have 10 minutes for your presentation.
4188 Thank you.
4189 MR. AUDET: Chairman and Commissioners, good morning and thank you for the opportunity to share Cogeco Cable's position on the occasion of this very important hearing on the regulatory framework as it relates to vertical integration in our country.
4190 I am Louis Audet, President and Chief Executive Officer of Cogeco Cable. To my right is Yves Mayrand, Vice President, Corporate Affairs. To his immediate right is Pierre Gagné, Senior Vice-President and Chief Financial Officer. On Pierre's right is Caroline Dignard, Senior Director, Legal Affairs and Chief Privacy Officer. To my left is Suzanne Blackwell of Giganomics Consulting Inc. who has helped us in preparing this presentation. To Suzanne's left is Dr. Roger Ware, who has authored a very interesting expert paper that is filed with our submission.
4191 First, allow me to situate the fundamental purpose of this proceeding as we see it.
4192 The purpose of this proceeding is to ensure that the Canadian broadcasting system continues to fulfil the policy objectives of the Broadcasting Act and serve the interests of Canadians, notwithstanding, or in spite of, the emergence of a few large vertically integrated groups within that system. The vertically integrated groups should not be left with the incentive nor the opportunity to abuse their market power to the detriment of a competitive market, and ultimately of course to the detriment of Canadian consumers.
4193 The concern over the potential abuse of market power is based on sound economic theory and concrete examples from past experience here and abroad, including our own in Portugal. It is reflected in the regulatory frameworks of all market-based economies.
4194 Simply put, free competitive markets are the desirable market structure, but when a given market becomes highly concentrated and vertically integrated, as is the case now in Canada, market imperfections start to take hold and the market becomes no longer free and competitive if it is left unchecked.
4195 It is untenable to argue that a market in which there are players with significant market power should be free of any regulatory oversight, or that vertical integration is always good for the economy and consumers regardless of circumstances that prevail in that relevant market.
4196 Regulatory oversight very simply means that there are clear and sound rules in effect, that the dominant players in the relevant market must remain honest and play by those rules, and that the regulator will uphold those rules when necessary.
4197 It is not true that the regulatory oversight we have proposed would supplant market forces, undo business plans, stifle innovation, manage the businesses of these groups, all of which, quite frankly, are red herrings that are presented to you to distract your attention away from the very real dangers that are involved in the current situation.
4198 We believe that vertically integrated groups should be defined for regulatory purposes so as to comprise the four existing Canadian vertically integrated conglomerates, namely Bell, Rogers, Shaw and Quebecor.
4199 I will now turn this over to Yves Mayrand, who will give you full details about our position.
4200 MR. MAYRAND: The big four control more than three-quarters of all Canadian television programming and distribution revenues, and well over two-thirds of all wireline and mobile platform subscribers. There are no substitutes to the prime sports and entertainment services controlled by the big four that are available for distribution in Canada, and the rights to prime sports and entertainment programs and events are increasingly being purchased by the big four for all their wireline and wireless platforms on an exclusive basis.
4201 It is, frankly, ludicrous to suggest that over-the-top distribution of television programs through the internet can presently, or is likely in the foreseeable future, to discipline the big four or challenge their chokehold on revenues, customers, platforms and program exhibition rights in Canada, especially for marquee programming such as sports and major events.
4202 This means that reasonable safeguards and regulatory oversight are critically needed in the circumstances. We advocate very simple and straightforward safeguards. They are based on four cardinal principles that are already an integral part of Canadian communications law: no unjust discrimination or undue preference; effective dispute resolution; separate customer service groups to deal with competitors; and appropriate reporting to the Commission.
4203 Let me summarize the basic safeguards that we advocate.
4204 The no unfair discrimination and undue preference principle should be supported by four specific measures:
4205 First, vertically integrated groups should not be permitted to conclude exclusive program rights agreements that preclude or hamper their distribution by non-related distributors;
4206 Second, access to programs controlled by vertically integrated groups should be made available by them to non-related distributors on fair and reasonable terms in order to preclude competitor margin squeezing;
4207 Third, vertically integrated groups should be precluded from granting their own distribution arm a head start on the distribution of new programming services; and
4208 Fourth, vertically integrated groups should be required to make their programming services available on a standalone basis, particularly for non-replicable marquee services such as sports and major events.
4209 The effective dispute resolution principle needs to be strengthened with respect to the following three elements:
4210 First, the reverse onus provision in case of discrimination of preference raised in a dispute should be extended to all programming services controlled by the vertically integrated groups;
4211 Second, the standstill provision should be extended to all programming services controlled by the vertically integrated groups; and
4212 Third, the timelines should be tightened and transparency improved for the dispute resolution process on program supply agreements, and enforcement should be swift in case of violation.
4213 Our proposals respecting the remaining two principles of communications are as follows:
4214 Vertically integrated groups should be precluded from sharing competitive information from their competitors as between their programming and distribution arms; and
4215 The Commission should subject vertically integrated groups to reporting requirements that will enable effective oversight and enforcement in case of anti-competitive practices on their part.
4216 Now, if the vertically integrated groups really plan to flay fair and square rather than squeeze out competitors, they should not take issue with any of these proposes safeguards.
4217 We are particularly appalled by Bell's double standards in this proceeding. Bell has called repeatedly for perfect symmetry of the regulatory frameworks for telecommunications and broadcasting distribution. Yet it abandons this stance when it comes to reverse onus. This provision that we are advocating plainly mirrors section 27(4) of the Telecommunications Act, which states that, and I quote:
"The burden of establishing before the Commission that any discrimination is not unjust or that any preference or disadvantage is not undue or unreasonable is on the carrier that discriminates, gives the preference or subjects the person to the disadvantage".
4218 In their written submission Bell argues that the reverse onus provision should instead be abolished altogether for all programming services.
4219 Bell has also reversed its position on strengthening the dispute resolution regime. In the distribution framework proceeding, Bell noted the largely unanimous position of parties to strengthen the dispute resolution provision in the regulations, yet it is now opposed to doing so.
4220 In the same piece, Bell also specifically advocated, contrary to the position of CTV as it then was, a status quo period for all programming services and BDUs during the dispute resolution process, adding that, and I quote:
"...a status quo period remedies any inequality that may exist between large and small players, and allows the dispute to be settled without causing potentially irreparable harm to one party."
4221 Now that it has acquired CTV, Bell wants to be able to withdraw signals of its conventional and specialty television services, including sports, from competing distributors.
4222 This leads us to insist on the critical importance of ensuring that a vertically integrated group such as Bell cannot withdraw the signal of any of its television services, including its sports programming services, from any of its BDU competitors. We urge the Commission to make an unequivocal statement on this issue and to promptly modify the Regulations in light of the reclassification of TSN and RDS as Category "C" services.
4223 Foreclosure of non-replicable programming services such as TSN and RDS would seriously harm Canadian consumers and completely undermine competition in the Canadian broadcasting distribution market. This is not a theoretical problem, as we have been formally notified by Bell of the termination of our affiliation agreements for the CTV services, including TSN and RDS.
4225 MR. AUDET: Thank you, Yves.
4226 The Commission is entrusted with the role of supervising both the broadcasting and telecommunications sectors, both of which are regulated industries. It has, in our respectful submission, the responsibility to deal directly and effectively with competition issues arising in these increasingly converged industries. The Commission cannot satisfy itself with general non-binding representations from parties with significant market power that nothing will go wrong and that no regulatory oversight is required.
4227 Please remember that it took four decades to painstakingly develop a competitive telecommunications marketplace in Canada. Forty years in a converged broadcasting and telecommunications world, the Commission must ensure that this hard-earned competitiveness is not -- will not undermined as a result of the abuse of dominant market power by vertically integrated groups.
4228 I wish to remind you that during these 40 years there have been many casualties. I will not go over them because this Commission knows them very well.
4229 In doing so, the Commission will only be following the same path as many other regulators of the broadcasting and telecommunications sector have done in other countries. The Federal Communications Commission came up with a detailed set of regulatory measures as a result of the Comcast/NBC Universal vertical integration transaction review that, as recently noted by its chief economist, Jonathan Baker, provides "a roadmap for vertical merger analysis" for any administrative tribunal.
4230 While the Canadian vertically integrated groups make sure they ignore the FCC ruling in their submissions, we submit that this FCC ruling cannot be ignored by the Commission. It would indeed be inappropriate for the Commission to turn a blind eye on the anti-competitive effects of the same vertical integration and market power issues in the same sector here in Canada.
4231 I will add that there are very important distinguishing features that I wish to remind the Commission of. In the Comcast/NBC Universal transaction, please remember that there is a minority partner, General Electric, and hence Comcast may not deal itself any preference, because in doing so it would be short-changing its partner.
4232 Similarly, in the year 2000 Bell purchase of CTV, it had minority partners to the level of 30 percent, therefore it could not deal itself any privilege without short-changing its minority partner.
4233 In the case of all the majority -- the large vertically integrated groups we have referred to today, they do not have minority partners to ensure that there are no preferential treatment to themselves.
4234 We believe that our remarks have addressed the issues set out in the Commission's letter of May 30, last.
4235 To supplement this presentation, and in the interests of brevity, we have attached to the written copy of our oral remarks a summary of our position on each of those issues in the order listed in that letter. The summary, in table format, should assist in the ensuing discussion during the question period.
4236 We have also attached a comparison, also in table format, of the safeguards that we and other distributors in this proceeding advocate as our early contribution to an eventual code of principles and practices.
4237 We thank you. We are ready to answer your questions. I would particularly invite you to ask questions to our expert economist, Dr. Roger Ware, who is widely recognized as one of the leading Canadian scholars on the subject of competition and vertical integration.
4238 THE CHAIRPERSON: Thank you for your submission, particularly for the two annexes at the end. That is very helpful in our attempts to digest everything that we hear at this hearing.
4239 First of all, I notice that you are not in favour of a skinny basis, which does surprise me because the rest of your submission is basically all in established fair competition from your point of view and in order to maximize consumer benefit.
4240 For the life of me I cannot understand why you are against skinny basic, because surely that does enhance consumer benefit.
4241 MR. AUDET: I would be happy to answer your question, Mr. Chairman.
4242 The issue is a complex one because of the legacy that cable systems come from. They come from an analog base and they are migrating to a digital way of delivering the signal. So in the analog world you had a complex set of trapping requirements and that made any changes extremely difficult to do.
4243 Now, having said that, as we move into digital it facilitates the shaping of appropriately sized packages.
4244 I wish to remind you, however, that we do have, in our Québec system, the option on digital of people to buy smaller packages and the numbers that we get are insignificant.
4245 I also wish to point out that in Portugal we also have a smaller basic service that hardly anyone subscribes to. So in our experience it is not demonstrated that consumers actually react positively when they are offered that option.
4246 Now, that being said, will it always be that way in the future? I don't know. But I do know one thing, as we continue to convert our cable systems to all digital, and as consumers become more and more discerning and demanding, there will be a gradual move to a reduction of whatever we offer into smaller packages. When that happens we will be happy to be right in there, if not leading the process, to make sure that we meet demonstrated consumer demands.
4247 Now, there is a corollary to this. The corollary to this is that many programming services want to be included in a large package, it has high penetration, et cetera, et cetera. This is an animal of the past. In the future consumers will demand a sharper ability to choose and they will expect that. So the notion that large, highly penetrated packages will continue into the future is simply erroneous.
4248 THE CHAIRPERSON: Did you just say that you offer a skinny basic in your Québec services?
4249 MR. AUDET: Could you please repeat?
4250 We do not offer a skinny basic in Québec, but we do offer the opportunity for consumers to take smaller sized packages, say a basic package of 25 channels.
4251 THE CHAIRPERSON: As opposed to in Ontario, how big is it?
4252 MR. AUDET: We do not offer that opportunity in Ontario.
4253 THE CHAIRPERSON: Why?
4254 MR. AUDET: Because after we experimented with it in Québec it became clear that we had wasted our time so we didn't go any further.
4255 THE CHAIRPERSON: But, Mr. Audet, by the very fact of what you just said about the way you see it in the future, that people will insist on having smaller packages and being more selective -- of course I understand that some broadcasters may want to be sold in packages rather than on a pick-and-play basis -- what is wrong with establishing for the digital world -- I understand in the analog world there is a problem of traps and extra costs, et cetera, but just for the digital, the obligation to serve a basic package consisting of OTAs, 9(1)(h) and educational broadcasters, nothing more.
4256 That is the absolutely basic you have to do in order to get any of the other cable channels, then let the consumer decide. And if, as you say, they don't want it, fair ball but, like you, I believe that the trend is just much more to consumers being selective and I do not understand, especially at the time of vertical integration when we have four Companies controlling such a huge part of the distribution market we should allow the vertically integrated companies to find what is a basic package and thereby put in that basic package as many of their own channels as the market will bear.
4257 MR. AUDET: In the absence of demonstrated demand for this service, and we are in contact with our customers on a daily basis, I think it would be unwise to prescribe the creation of such a package.
4258 However, I do wish to add in the same breath that all cable systems across the world, and that includes us, are gradually migrating to all digital transmission and in the process are reclaiming bandwidth, analog bandwidth, to be able to squeeze any channel up to 13 standard definition digital channels, or three high definition digital channels.
4259 So there is a natural evolution towards a reduction of the analog base. So I don't think the Commission should prescribe anything, I think this is happening, practically speaking, on a daily basis and we are moving along with the market and we are shaping market expectations as we go along and the market is shaping us when it does express its preferences.
4260 MR. MAYRAND: If I may, Mr. Chairman, I think we totally understand your point about the risk in a vertically integrated environment that some VI groups will push their own services into a very large basic.
4261 Now, conversely, concern that we have with a mandated solution is technological neutrality as between cable, wireline cable, optical and satellite and our concern with the possibility that in this skinny basic precisely those same vertically integrated groups who control the conventional television signals that would be part of that -- and the 9(1)(h)s in some cases -- I'm sorry, not the 9(1)(h)s but the conventional television signals --
4262 THE CHAIRPERSON: Yes.
4263 MR. MAYRAND: -- could refuse to provide those signals in return for higher compensation under a value for signal regime. We have to take that into account.
4264 So that's our concern from a non-integrated perspective.
4265 THE CHAIRPERSON: Well, value-for-signal is before the courts. Let's see what the courts have to say.
4266 At any rate, as we all know, the issue came up in a pre-vertically integrated world, so whatever happens in the courts, we have to look at it in light of an integrated world.
4267 But since you do not own any content, I really am baffled by your opposition to skinny basic. I mean, that does not cut against you in any way, and it is something that is consumer friendly, and would hopefully keep them in the cable world rather than going to the wireless world or the internet world.
4268 I just don't understand where your economic interest is in opposing a skinny basic.
4269 MR. AUDET: Mr. Chairman, I am trying to be as pragmatic as I can. The experiences we have lived in Portugal and in Quebec demonstrate that this is not an option that consumers are looking for, with all due respect.
4270 THE CHAIRPERSON: Okay. Before I pass you on, I have one other question, which has to do with the whole issue of functional separation, keeping the data apart, making sure that when you buy content from a vertically integrated company, that company cannot use data that it obtains from its negotiations with you for its distribution side.
4271 You suggest something akin to the telephone world, where there are designated customer service groups that are limited for that content.
4272 I don't know whether you were here yesterday when Astral was testifying before us. They basically said: Even if you do that, how are you going to enforce it? How are you going to ensure that you can impose it as a mandatory -- and hopefully people abide by it, basically because business generally plays by the rules, et cetera, but enforcement of it is really very problematic.
4273 What is your view of all of this?
4274 MR. MAYRAND: I think our view is quite simple, Mr. Chair. We are not suggesting that it's an absolutely perfect tool. In fact, I don't think there can be a perfect tool designed to absolutely prevent any leakage.
4275 However, when one looks at the system that has been devised and put in place on the telecom side, I don't think that any participants would say that it is a worthless tool. It's probably the best one we have, and it is certainly not worthless.
4276 Our point here is simply to say that if there are people very familiar with the rules in telecom, who advocate, on every possible occasion, perfect symmetry between telecom and broadcasting rules, notionally they should have no difficulty at all having the same tool, the very same tool -- we are not reinventing the wheel here --
4277 THE CHAIRPERSON: Yes.
4278 MR. MAYRAND: -- the same tool apply in the circumstances we are dealing with for affiliation agreements.
4279 THE CHAIRPERSON: Okay. Thank you, that is a very straight and clear answer. I appreciate it.
4280 Peter, you have several questions?
4281 COMMISSIONER MENZIES: Yes, thank you.
4282 To start off with -- it kind of goes to paragraph 9 of your written Executive Summary, but also just the sort of broader issue.
4283 So far in this hearing we have heard a lot about motive and opportunity, but we haven't seen too much evidence of broken windows yet. It's fear of broken windows, if you get where I'm going.
4284 You have pointed to -- and more specifically today in your verbal presentation than in your written presentation -- that Bell has notified you of the withdrawal of CTV services during your negotiations.
4285 I have two questions. Can you detail that a little bit, and within that detail, how long have these negotiations been going on, were they taking place with CTV before it was a Bell entity, and was there a change after?
4286 MR. AUDET: Allow me to provide an introduction to the precise answer that Yves Mayrand will give to your question.
4287 We have broken windows. We have broken windows in Portugal, where a merger was allowed on the basis of soft commitments that were not honoured, and that have resulted in excessive pricing; unusual, very high minimum thresholds that, in fact, ensure that the other party is paid amounts well above what we should be paying; delay in providing new programs of up to one year, and there is always a good excuse for that; and even, would you believe, the need to advise the supplier in advance when you are going to do a promotion that involves his service.
4288 So, yes, we have seen broken windows, and they are not good.
4289 Now, that being said, that is my general comment about broken windows, and now Yves will answer specifically your question.
4290 MR. MAYRAND: First, Commissioner Menzies, let me make it very clear that we have not, at this time, received formal notification that signals of outstanding affiliation agreements will be pulled by Bell Media. We have not received that. We have received notification that our agreements are terminated.
4291 Now, as to the sequence of negotiations, let me be absolutely transparent on how this has unfolded.
4292 We had a group of agreements in the CTV portfolio that came to expiry on September 30th of last year. We had another group that was going to expire on December 31st of the same year, 2010.
4293 We took the initiative to make a proposal to CTV, in mid-November of 2010, on the renewal of all of these agreements for all of these services.
4294 The transaction involving Bell and CTV was already in the works and known.
4295 We did not get any clear reaction to that until earlier this year, and following the proceedings that you will know of on this transaction, there was a proposal made by Bell Media to us.
4296 Now, we have provided you, as part of our filing, the basic parameters of the increases that were proposed in the Bell Media proposal.
4297 We think that they are not at all conducive to a reasonable understanding and agreement.
4298 We took, again, the initiative of providing to Bell Media a counterproposal. This was done a number of weeks ago. We are still waiting for a formal reply to that counterproposal.
4299 That is the sequence, sir, of the events.
4300 COMMISSIONER MENZIES: What do you think, in the long run, just to help us understand this -- don't you think that the possible public consequences or regulatory consequences of somebody using undue preference to pull a signal, withdraw a signal from a provider such as you, would be so severe that it's almost impossible to contemplate such an action?
4301 MR. AUDET: Our experience to date has been that when you try to fix something after it's broken, you usually suffer irreparable harm. Hence, the need to have clear rules ahead of time, so that everyone knows what they can and what they can't do, and when something wrong occurs, that the referee blows the whistle -- not two years later, blows the whistle right then and there, before the breakage occurs.
4302 Yves, do you want to add anything to that?
4303 MR. MAYRAND: Yes. I think we need to look at economic theory here, and I would like to pass this question on to Dr. Ware, because I think it has to be clearly understood that a foreclosure involves, in classic economic theory, and vertically integrated circumstances in a market, a number of different possibilities. One is complete foreclosure of the service. Another possibility is the threat of such withdrawal, which clearly affects, significantly, the bargaining issues; and another one is the possibility that the service is not actually foreclosed, but is practically foreclosed because of the contractual and economic terms that are being insisted upon by the vertically integrated group.
4304 Dr. Ware, I don't know whether you want to help us with this...
4305 DR. WARE: I would be happy to. That was a very nice summary, I thought, actually.
4306 As I describe in my report, the modern bargaining approach to understanding what the effects of vertical integration will be in markets that are concentrated, upstream and downstream, does predict, as Yves said, that because there is the ability to foreclose, foreclose does not necessarily mean -- it doesn't mean that there is a prediction that service will be withdrawn, but the ability to foreclose creates an increase in bargaining strength. In the jargon of the literature, it creates a threat point, a better threat point for the seller of programming, or for the integrated entity, and that ability is likely -- could lead to a total foreclosure, that is, a withdrawal of signal, but more likely is, in fact, likely to lead to a significant increase in prices to the unaffiliated entity.
4307 COMMISSIONER MENZIES: Right. I understand your argument here, but can you point to where the existing regulations are inefficient in mitigating this potential behaviour, more specifically?
4308 You have called for ex ante regulations and that sort of stuff, which I will talk about in my next question, but where, specifically, are the current regulations failing to address the situation that you describe?
4309 MR. MAYRAND: I can answer that, Commissioner Menzies.
4310 The gap that we see is one that is shown, in crystal clear form, in the comparative table that the Chair circulated on the first day of the hearing. You will see that there is a lack of reverse onus with respect to a number of programming services, including a number of those services that are now controlled by vertically integrated groups.
4311 The other aspect of the regulatory framework that, in our view, needs some fine tuning is precisely in order to avoid the abuse of the threat of pulling out signals. It is to make it crystal clear in the regulations, and particularly in the specialty programming regulations, that a VI group cannot pull a signal while a dispute is pending, and until such time as the dispute is finally resolved by the Commission.
4312 Those are the two key things that we have pointed out.
4313 COMMISSIONER MENZIES: Do you mean, just to be specific, that they could not withdraw a signal from anyone, as opposed to having, say, a rule that said, "If you withdraw a signal from a non-vertically integrated entity, you have to withdraw it from yourself," or something?
4314 MR. MAYRAND: We are not opposed to the rule being made general. What we are saying is, at the very minimum, the Commission should certainly ensure that a vertically integrated group is not in a position to pull a signal away from a distributor that is not part of its group while a matter of affiliation is under dispute, and in the dispute process.
4315 COMMISSIONER MENZIES: I think you have kind of answered this, but I think I need to ask it anyway.
4316 The issue with ex ante action is that anything -- there are upsides and downsides to it, but one of the downsides is that anything that isn't expressly forbidden can be interpreted as being permitted.
4317 You know what I mean.
4318 And there is no end to the ability of the human imagination, as we see, to work its way around whatever is put in place, with the implied thought that, if it isn't expressly forbidden, therefore it's permitted.
4319 Here is the issue for us. I don't know that it's possible -- I'm pretty sure it's not -- to anticipate every little piece of -- to use a technical term -- monkey business that can be imagined to work their way around the regulations.
4320 Wouldn't it be more effective to have a swift process to act ex post, rather than have to go through all of the other --
4321 MR. MAYRAND: Conceptually, I think we are plainly in agreement with you, Commissioner Menzies.
4322 However, I want to address the issue of ex ante versus ex post rules.
4323 By first prefacing what we are proposing, really, in our submission and the oral presentation this morning; what we are proposing, in fact, is very straightforward. We are not proposing that the Commission should address every single iterative possibility of preference or discrimination. We are not at all advocating that.
4324 What we are saying is, you can have just a very limited number of basic engagement rules that instruct the process ex post that will follow, which is a dispute resolution process that you have in your framework, that you designed, that you have applied for years, and that should continue to apply going forward, bearing in mind that you are now dealing with substantially different animals, which are vertically integrated groups.
4325 Of course you will have specifics in each case. Of course you will continue to have specific complaints. Of course the parties will provide arguments back and forth.
4326 The only thing we are saying is, make sure that the basic rules of engagement, such as the rules on exclusivity, are clear, are transparent, known to the participants, known to the public, and available for discussion -- I should say, rather, not discussion, but implementation at the dispute resolution process level.
4327 That is what we are advocating.
4328 Now, there has been, I think, a lot of abuse of the use of the term ex ante, because what I gather from some submissions earlier this week is that anything that has to do with sound basic principles is somewhat taboo because it constitutes ex ante regulation. That's not at all true.
4329 If you push that logic to its ultimate conclusion, we shouldn't have a Broadcasting Act, we shouldn't have a Telecom Act, and we shouldn't have a Competition Act.
4330 There has to be a set of ground rules in any kind of human activity. To take the analogy of a soccer game, you have rules that are set. The rules are known by all of the participants. They are known by the public that is out there watching, and the referee whistles and calls penalties when the rules are broken.
4331 We are not asking for anything different from that.
4332 I just want to make it very clear that the notion of ex ante, truly -- and we are not at all asking the Commission to get into that kind of business, about prohibiting everything and allowing by exception, or micro managing prices. We are not advocating anything like that.
4333 All we are saying is, there are a certain number of basic rules that you will need, inevitably, to deal with disputes, as, if and when they arise. You will need those rules. Please avoid having discussions on the real nature of these ground rules while the disputes are being adjudicated.
4334 COMMISSIONER MENZIES: I just want to clarify -- that was well articulated, but I just want to clarify that you are talking about basic rules, as opposed to, necessarily, a code, which has been part of the conversation this week.
4335 A code -- you can't regulate attitude, in terms of that, and I just wanted to know what your view is. Is it more effective to have rules in place versus a code, or what would be the difference in terms of that?
4336 Rules are one thing, a code, in terms of an expectation, is another, and some might criticize the code idea as kind of being half pregnant. I mean, either make rules or don't make rules. Otherwise, they end up being endlessly argued in courts and other places.
4337 MR. MAYRAND: I think it is certainly a very interesting area of discussion.
4338 Cogeco Cable did not advocate, per se, a code. We didn't actually use that word in our written submission. We just said: Vertical integration, based on economic theory, and tried-and true practice, and known events and indicia of the potential for abuse, means that there has to be a limited number of basic safeguards.
4339 And we pinpointed exactly where the loopholes might be in the framework that we have now, which was designed at a time when there was, essentially, no significant problem with vertical integration.
4340 So we have pinpointed those areas that need to be covered, and we don't think they are huge. We don't think they are extensive. We don't think they are unbelievably complicated to apply. They are actually, we think, quite straightforward.
4341 Now, if some people want to call this a code --
4342 THE CHAIRPERSON: I'm sorry, I have to interrupt you. You are playing games here. You give us a document, together with five other people -- you call them principles, not a code, but that's exactly what the discussions have been talking about here, and what my colleague is talking about, which sets out expectations of behaviour.
4343 That is really what -- and it is your joint proposal.
4344 MR. AUDET: Mr. Chairman, I couldn't say this with enough conviction and force. You should not treat these as expectations, you should treat them as rules to be followed and abided by everyone involved.
4345 The word "code" in CRTC hearings is a very dangerous word, because in the past it was meant to mean a voluntary code.
4346 We are not talking about a voluntary code, we are talking about compulsory rules of how you play the game of soccer, that's all.
4347 COMMISSIONER MENZIES: Thanks. That pretty much answered that.
4348 COMMISSIONER MENZIES: On page 3 of your written presentation, your first point says: "Vertically integrated groups should not be permitted to conclude exclusive program rights agreements that preclude or hamper their distribution by non-related distributors."
4349 I am not clear, and I would like to be clear in this area. Are you talking about mobile distribution as well, or is this conversation being restricted to cable platforms and satellite platforms?
4350 MR. MAYRAND: I am not exactly sure which part -- are you referring to our oral presentation?
4351 COMMISSIONER MENZIES: Sorry, the oral presentation, and the copy I have is printed on both sides --
4352 MR. AUDET: Allow me to make an introductory comment to that.
4353 It is easier to manage a universal principle than to start parsing off: Well, when you do it in this case, it's okay, but when you do it in that case, it's not okay.
4354 And, if it's a little darker, we won't look at it.
4355 That's going to be very difficult. It's a lot easier to have a competitively neutral position that says: Look, folks, everything is available to everyone, on reasonable terms, and in a timely manner.
4356 COMMISSIONER MENZIES: I need to explore that a little bit because, particularly in your oral presentation, I think in your introduction, you articulate the dilemma very well. It is one of ensuring that we have a very competitive industry that best serves the consumers.
4357 Because, at the end of the day, these are public bodies, and that's what you are trying to do, and that's what we are trying to do.
4358 But to make sure that, in allowing that competition, it doesn't kind of swallow itself eventually, that somebody becomes somebody who wins in essence or uses that dominant position to, in the end, repress competition.
4359 So in terms of these, the discussion has been around exclusive programming or you might even call it unique programming.
4360 One of the dilemmas is if you restrict that on, say, new platforms like mobile you disincent creativity and innovation and you don't want to unnecessarily. One would expect one wouldn't want to disincent creativity and innovation so that even your company if you wanted to offer something unique in your package would be prevented from doing so. They would actually take away the incentive to be more competitive. And I'm trying to figure out where you see the balance in that being.
4361 I mean, your company's best interest at this time is obviously to have something prohibitive in terms of that but in the system -- it's always difficult to get people to speak about something that philosophically might be preferable in the long run but, in the short term, is actually against the company's best interests.
4362 But wouldn't it -- philosophically, isn't there a need and a benefit from allowing people to have unique or exclusive content?
4363 MR. MAYRAND: First of all, I thought that the question was related to actually point three in our oral which has to do with the head start that one might --
4364 COMMISSIONER MENZIES: Sorry, the first question was to point one.
4365 MR. MAYRAND: Oh, point one.
4366 COMMISSIONER MENZIES: "To conclude exclusive program rights agreements..." and I wanted to get the sense of your program rights, what you meant when you said program rights.
4367 And I did have a question on point three too which was the same, so you can answer them both, what you meant by distribution arm.
4368 MR. MAYRAND: Well, to start with the first one, on the rights issue, per se, we actually -- I could refer you to paragraph 69 of our written submission, not the oral one but the written submission.
4369 We explain that, you know, extending this moratorium that was imposed in the Bell CTV decision to make it a ground rule is appropriate and it is timely, and that that would be consistent in terms of treatment for programming content as it spreads from traditional to non-traditional distribution platforms. It would allow the Commission's policies with a growing trend to digitizing content that allows consumers to view programming by broadband connections and mobile devices to be -- to be respected.
4370 I would say that on the question of innovation; first of all, let's understand very clearly what innovation really means. I assume -- we are always talking about innovation in the way that actual programming content is produced, not on its distribution and particularly its distribution tied to a particular force platform.
4371 Second, let me clearly indicate to this Commission that the situation we are dealing now presently in the vertically integrated environment that has arisen out of the recent transactions is one that is dramatically different from the situation that prevailed when the last Olympics package was negotiated and deals were made for mobile platform rights.
4372 Why is that; because at that time Bell Mobility was dealing at arms-length with a broadcaster that had purchased a package of rights as has been traditionally done. In this current environment this will no longer be the case.
4373 Now, that prefacing remark, innovation is a very nice concept but, even assuming that innovation is really what we are talking about, the FCC has looked into what is a particular advantage in a vertically integrated environment of possibly creating a problem with innovation. Their conclusion was in the Comcast-NBCU deal that there was really no way of evidencing that there would be a significant problem for innovation.
4374 Now, Dr. Ware has studied that question of innovation and the extent to which it is a serious problem in analysing from a conceptual economic perspective the problems relating to the risk of foreclosure --
4375 COMMISSIONER MENZIES: I would be interested in that because it is always impossible to prove a negative in that sense, right?
4376 MR. AUDET: I think we should ask Dr. Ware to give his point of view.
4377 DR. WARE: If I could just add two quick points.
4378 First, the question of which is better for innovation, competition or monopoly, is a very old one in economics and goes back you know at least to Schumpeter and even well before that actually.
4379 That question has been resolved in favour of all competition policy and that question has been resolved in favour of all of competition policy, and competition law around the world is predicated on the idea that we like competition better. We don't want a world of monopolies.
4380 So you know, I think we -- you know, well, there is some sort of seductive appeal about this notion about you need to protect -- create some monopoly rights in order to create an incentive for innovation. That is not in fact the case and not -- it's not the principle on which all of competition policy is founded.
4381 The second point I wanted to make is that a similar idea relates to the notion of exclusivity or exclusive arrangements that exclusive arrangements are quite benign and innocuous in a world in which there are competitive markets at all ends. So for example, if programming was a highly competitive marketplace and if distribution was a highly competitive marketplace, exclusive arrangements would really not be of concern.
4382 The problem is -- and this is again absolutely standard boilerplate competition policy, is that when you have market power at one or both of those ends, as we do in Canada or even -- actually, in fact what we have are dominant firms at the programming end in Canada -- then it's well accepted that exclusive arrangements will in fact be anticompetitive.
4383 COMMISSIONER MENZIES: But I am just going to -- just to be clear, if we are talking about exclusive arrangements versus unique arrangements, exclusive content versus unique content, for the purpose of this discussion we are talking about content that is part of the vertically integrated structure, for instance, right?
4384 So if we are talking Bell we are talking TSN content, for instance, as opposed to content that might be created -- new content, unique content; added features to platforms. You know what I mean? It's something that is not currently within the distribution infrastructure.
4385 So to think of TELUS' CFL arrangement, as I understand it, they showed the games but people could watch the games elsewhere. The games were not denied because they were being shown on TV. But they did have added -- they did have added features for their customers that were created solely for their mobile platform.
4386 I just want to be clear that these are two different things in your mind or not.
4387 MR. MAYRAND: Well, it is in practice very difficult to make that distinction. And frankly, Commissioner Menzies, I'm not sure how the Commission could in practical situations arising in a dispute setting, how the Commission could clearly distinguish in a rational way between those two types of content.
4388 The problem is this: The problem is that imagination can go on --
4389 COMMISSIONER MENZIES: Just to use an example there, if you were on your cable system and you were to offer as an added feature of being a Cogeco subscriber you would get access to your radio stations, for instance.
4390 Should that be -- is that the sort of thing that should be forbidden where you could throw that in as an added value that that would be --
4391 MR. MAYRAND: I don't think that -- and precisely that gives me the opportunity to tell you that all that we are aiming at here is ensuring that distribution rights are actually available across the series of various platforms that are available, present and competing for market share within this Canadian marketplace.
4392 Now, it's always been a cornerstone of the Canadian broadcasting system that programmers, i.e. those people who produce, acquire rights, package rights to video programming, that those people in Canada are perfectly free to acquire exclusive rights to that programming for exhibition in Canada. But it has always been conversely a cornerstone of Canadian broadcasting policy that the output of this programming is widely available without restriction on the distribution platforms whether satellite or cable or MDS, whatever.
4393 Now, we have a new platform that has emerged in recent years which is the mobile platforms. We think the principle should be upheld with respect to mobile platforms.
4394 Now, can there be innovation or initiative in marketing, in promotion?
4395 There are tonnes of ways that there can be innovation and marketing promotion. But the availability of the content for distribution by distribution platforms or services not related to vertically integrated group is the key issue.
4396 COMMISSIONER MENZIES: Thank you. Just a couple of last questions.
4397 Regarding your request for the filing of commercial data that's referenced in the Executive Summary, paragraph 35 of your written, do you think that should apply to vertically integrated companies only or would that apply to companies such as yourself as well?
4398 MR. MAYRAND: Well, there again, Commissioner Menzies, you know, we try to address the issue of the Commission as part of its supervisory role under the Broadcasting Act, which I think is undenied, that the Commission would have the information tools to observe what happens prior to parties becoming related, what happens afterwards and how that compares to contractual relationships that are struck post vertical integration as between integrated players and non-integrated players.
4399 Now, if the Commission feels that it's simpler to apply a general rule and extend what is immediately required, we are not opposed in principle to that. I'm not sure what benefit the Commission would get from Cogeco Cable filing all its affiliation agreements in confidence, but if you feel that that's useful information in terms of understanding what is going on there, you know we will abide.
4400 The key issue right now is making sure that the Commission can get a sense of how things are evolving and what problems are arising before we get into specific disputes and specific cases, and that the Commission then tries to scramble to get the relevant information.
4401 COMMISSIONER MENZIES: Thank you.
4402 You made a reference in paragraph 13 of the Executive Summary of your written reply when you point to market squeeze as a strategy of some temptation. But you also mention that it's recognized in the Competition Act.
4403 Why in your view would that be insufficient safeguard?
4404 MR. AUDET: The question you have asked, Commissioner Menzies, is absolutely fundamental and it's a very important one.
4405 Regrettably, the way competition law is administered in this country, it allows immense damage to happen to players and thus reduce the diversity of suppliers.
4406 We have seen it in telecom. We have seen it in airlines. It's a disaster and that's an after the fact redress or a tentative attempt at redressing after the fact. This is precisely what we had been arguing should you -- the Commission should not do in the current circumstances.
4407 Now, having set that table, I will be happy to pass it on to either Yves or Pierre for further comments.
4408 MR. MAYRAND: If I may, Commissioner Menzies, just on the specific paragraph that you are quoting, I think that what we were just saying here is that it's widely recognized in competition law that margin squeezing is not a good thing.
4409 We weren't suggesting that the Competition Act is what should govern here. Why is that? Well, a very simple reason, because we are dealing here with a regulated industry that you regulate both from the broadcasting and the telecom side of things.
4410 Hence, as we said in our opening remarks, it is your responsibility to ensure that competition principles that are otherwise widely admitted in the literature and in the competition act of most developed countries that those principles should be upheld in the sector that you regulate.
4411 So I just want to make that clear.
4412 Now, margin squeezing is something that we have experienced first-hand in Portugal with a vertically integrated player.
4413 I'm sure that Pierre would love to give you a quick overview of our biggest fear on how that could unfold and give you a practical example of how that would likely unfold if there is no supervision of the Commission in this regard.
4414 MR. GAGNÉ: Thank you.
4415 So let us take an example of Bell that owns TSN and would increase, for example, it's pricing by a dollar on their programming fees on a monthly basis.
4416 So what this would imply for Cogeco was either we are absorbing that cost, creating a margin squeeze or we are passing it along to our customers.
4417 Now, that pricing dollar increase in our costs, should Bell do the same thing from the TSN group to its distribution arm, well, they have a choice of passing it along to their customers or not because essentially it's money that goes from the left hand to the right hand within the same entity. So in that context our pricing to our customers would be much higher over time than what Bell could do. So we would be in a disadvantaged position.
4418 Now, let's go a little bit further. Let's assume this time that Bell is doing the same price increase and, for example, Rogers with its Sportsnet programming increased also by a dollar.
4419 So what this entails? Well, interestingly enough between Rogers and Bell as an entity as a group, it would mean in fact exchanging a dollar for a dollar per customer. And so it happens that they have approximately the same number of customers. So in fact, for them it's a zero sum game.
4420 But for us what would this entail is that it's a two dollar price increase, in fact a dollar from Bell and a dollar -- or TSN -- and a dollar from Sportsnet. Then, the margin squeezing would become accelerated and that -- you could expand that for a certain number of years. Then we would have an issue with that.
4421 And it's not that much different than what happened in Portugal where we suffered a margin squeeze in terms of -- if you look at our revenue less our cost of content.
4422 So this is exactly what we are trying here to convey to you.
4423 COMMISSIONER MENZIES: Understood. Sorry, I do have one more question now.
4424 What gets in the way in terms of this between -- there is a lot obviously, but is there any way that this sort of -- the pricing strategy could be facilitated by building a more direct relationship between the consumer of the product and the original producer of the product?
4425 So that if I wanted to charge two dollars or 25 cents or 20 dollars per subscriber for XYZ TV you would just provide it and offer it to the customer and if they wanted to pay they would pay. There would be obviously some commercial benefit to you in the process but that would -- the price point would be determined by the number of people who were willing to pay it as opposed to being imposed on your and then you trying to find the market to pay for it.
4426 MR. MAYRAND: Well, it seems to me, Commissioner Menzies, in that kind of scenario you would -- you, the Commission, would inevitably be getting into very much ex ante price and terms of offering regulation. I think that becomes very, very complicated.
4427 I would think that you would have difficulty imposing a straight pass-through. In fact, you may not recall this, but the Commission used to have quite a number of years ago, pass-through limitations on the price of certain services as compared to the retail rates that were charged actually to the consumers. The Commission moved away from that and moved away from that because it was difficult to implement and it was considered that it was not conducing to a truly competitive marketplace.
4428 Now, I would submit to you in all honesty, that if you were to look at these types of scenarios you would get very quickly into huge complications.
4429 And it would not I would submit to you, with deference, it would not address the fundamental issue that you still have you know a dominant distributor that owns dominant programming that has marquee value that is intent on extracting as much as possible large rents from consumers who are connected to anything else but its own platforms.
4430 COMMISSIONER MENZIES: Thank you very much. I have no more questions.
4431 THE CHAIRPERSON: Tom?
4432 COMMISSIONER PENTEFOUNTAS: Good morning.
4433 Je pense que monsieur Gagné a répondu partiellement à une de mes questions, mais I would say you guys are like a cold shower on this hearing -- and I'm speaking for myself -- je dirais même une douche glaciale, parce que je ressens que c'est presque viscéral, dans le sens que vous avez du vécu, et du vécu outremer mais du vécu quand même, et si on peut utiliser ce forum-ci comme une espèce de session thérapeutique gratis et nous parler un petit peu de votre vécu outremer.
4434 Je comprends que ça peut être une copie conforme de la situation québécoise parce que vous avez un joueur dominant, et là-bas, vous êtes un petit peu comme vous êtes au Québec et dans l'Est de l'Ontario, le plus petit sur le terrain, et ça, dans le contexte du maintien du statu quo pendant les négociations et pendant la résolution des disputes qu'ils peuvent soulever.
4435 Je ne sais pas si monsieur Gagné ou monsieur Mayrand aimerait ça adresser la question.
4436 M. MAYRAND : Oui. Alors, pour ce qui est du statu quo, notre expérience au Portugal, c'est vraiment une expérience dans un cadre de réglementation qui n'établit pas de règle d'engagement de base ou de statu quo.
4437 Alors, on se trouve à avoir à gérer chaque situation au cas par cas, avec une plainte devant une autorité de concurrence et non un organisme de réglementation tel que le CRTC, parce que, au Portugal, il n'y a pas d'organisme de réglementation intégré comme le vôtre, et, fort heureusement, nous avons ça au Canada, mais au Portugal, ce n'est pas le cas.
4438 Alors, les problèmes que nous avons vécus de compression de marge ou d'exclusion ont été nécessairement mis devant l'autorité de concurrence, et nous avons dû vivre pendant littéralement des années avec une situation de pratiques anticoncurrentielles par un joueur intégré verticalement et dominant, sans aucun redressement ou sans aucune mesure.
4439 Nous attendons, d'ailleurs, toujours la conclusion de l'autorité de concurrence.
4440 CONSEILLER PENTEFOUNTAS : Que se passe-t-il entre-temps?
4441 M. MAYRAND : Eh bien, il se passe que nous perdons des abonnés, nous perdons des unités de service...
4442 CONSEILLER PENTEFOUNTAS : Vous perdez le signal?
4443 M. MAYRAND : Nous avons des menaces de perdre le signal. Nous avons des modalités contractuelles qui nous sont dictées par le joueur dominant sur les escomptes de volume, sur des planchers de rémunération garantie, sur la possibilité pour notre concurrent d'apprendre toutes nos campagnes promotionnelles d'avance.
4444 Alors, vous comprenez qu'on vit avec les dommages que ça cause, d'où l'expression de monsieur Audet tantôt, qui dit : Des vitrines cassées puis des bris, on en a vécu au Portugal. Alors, c'est ça, notre expérience.
4445 Maintenant, vous dites peut-être qu'on pourrait faire un séance thérapeutique ici au Canada. Je vous soulignerais qu'on n'a pas besoin de thérapie, on a besoin d'éviter tout simplement que la même chose se passe ici.
4446 Et fort heureusement, le CRTC a juridiction sur la matière, que ça soit de la radiodiffusion ou des télécommunications ou une convergence des deux, et vous avez déjà les outils de base, qu'il faut compléter avec quelques règles additionnelles pour boucher les trous, et c'est tout ce qu'on vous demande.
4447 CONSEILLER PENTEFOUNTAS : Merci pour les fleurs. Ça va nous aider dans nos propres sessions thérapeutiques.
4448 Wouldn't, however -- the status quo and the standstill clause, isn't that a sufficient safeguard in the Canadian context? You don't lose your signal and you live with the results of the negotiations or arbitration or mediation or wherever the thing ends up at the end of the day, but in the meantime you don't lose des abonnés, subscribers.
4449 MR. MAYRAND: I think that leaves entirely open the issue that arises with the introduction of new services, for example, which is a situation we live through in Portugal. We have documented that in our submission.
4450 Our main competitor, who is vertically integrated and in fact controls Marquis Sports Programming there, launched a number of additional services with a head start extending to in some cases well over a year before the content was made available to us as an independent distributor.
4451 So frankly, the opportunity and the incentive here in Canada is very much the same. I would submit to you that you will get a proliferation of so-called Category B or C services that are owned by the big four and that you will have a problem if you are just taking the strict sense of the standstill rule that applies only to the renewal of existing agreements for which there were prior carriage arrangements.
4452 COMMISSIONER PENTEFOUNTAS: What if we had a similar clause for new entrants, quitte à ce que vous soyez obligés de vivre avec le prix du marché à une date ultérieure? If you were in agreement with accepting the price, whatever that price may be, then you would have the right to carry that new Category B. Would that be a sufficient safeguard, in your view?
4453 It could be Cs, it could be Bs. I'm just talking about new entrants into the market.
4454 M. MAYRAND : Puis-je vous demander...
4455 CONSEILLER PENTEFOUNTAS : Oui.
4456 M. MAYRAND : ...quant au niveau par prix du marché...
4457 CONSEILLER PENTEFOUNTAS : Bien, de toute façon, même si on accepte le statu quo tel quel sur ce qui est déjà existant, un moment donné, il va falloir négocier un prix du marché, n'est-ce pas, et il va falloir vivre avec un prix.
4458 Là, je vous re-pose la même question. Il va falloir trouver un mécanisme par lequel on peut trouver un prix juste pour un produit quelconque.
4459 M. MAYRAND : Là est le noud de la question.
4460 CONSEILLER PENTEFOUNTAS : Tout à fait!
4461 M. MAYRAND : C'est comment est-ce qu'on définit un prix juste qui...
4462 CONSEILLER PENTEFOUNTAS : J'arrivais sur une autre question, mais...
4463 M. MAYRAND : ...je pense, est un prix qui doit correspondre à un prix de marché, comme vous dites.
4464 CONSEILLER PENTEFOUNTAS : M'hmm.
4465 M. MAYRAND : Le problème que nous avons présentement, c'est qu'il n'y a pas de marché libre pour ces services-là. Je pense qu'on est d'accord là-dessus.
4466 CONSEILLER PENTEFOUNTAS : Tout à fait!
4467 M. MAYRAND : TSN a un service de programmation sportive qui est né, s'est développé et a prospéré au Canada parce que l'importation et la distribution d'ESPN a été interdite par le Conseil et l'est toujours.
4468 Alors, on n'a pas de marché libre sur les intrants de programmation et on a des contraintes encore plus grandes dans un environnement d'intégration verticale où ces mêmes intrants de programmation importants, considérés voire même presque essentiels par beaucoup d'abonnés, pourraient ne plus être disponibles à des concurrents.
4469 CONSEILLER PENTEFOUNTAS : Oui, mais dans des négociations il y a toujours des mécanismes par lesquels on peut trouver le prix qui est juste. Déjà, on parlait d'arbitration qu'on voit dans le base-ball, par exemple. Ça été soulevé.
4470 Est-ce que vous avez une proposition par laquelle on peut y arriver?
4471 M. MAYRAND : Bien, notre proposition, elle utilise... Parce qu'on a été modeste et réaliste et raisonnable, notre proposition a été de dire : Vous avez un mécanisme de règlement des différends; on va jouer à l'intérieur de ce mécanisme-là, en s'assurant, toutefois, que le Conseil est préalablement informé de ce qui se passe dans le marché, puis que vous avez des données. C'est le volet rapport que nous avons suggéré, qui vous permet de suivre, de façon régulière...
4472 CONSEILLER PENTEFOUNTAS : Quand vous parlez des rapports, vous parlez des rapports privés, financiers, quoi?
4473 M. MAYRAND : Des dépôts de contrats d'affiliation pour l'information du Conseil...
4474 CONSEILLER PENTEFOUNTAS : Oui.
4475 M. MAYRAND : ...à titre confidentiel. On ne demande pas d'avoir accès aux contrats d'affiliation comme tels...
4476 CONSEILLER PENTEFOUNTAS : Non. C'est clair.
4477 M. MAYRAND : ...mais que vous les ayez en main et que vous puissiez suivre l'évolution des modalités.
4478 Or, les modalités, ce n'est pas juste le prix. C'est le packaging. C'est les autres restrictions : les exigences de volets hautement pénétrés, et caetera; les exigences de distribution à la base ou les possibilités de distribution à la base qui ne sont pas offertes à d'autres; les clauses de nations plus favorisées; et caetera; et caetera.
4479 Là, vous avez les contrats. Vous êtes en mesure de voir qu'est-ce qui se passe sur le terrain. Alors, c'est ce qu'on vous suggère. Ça ne change rien aux mécanismes de base.
4480 On dit juste, vous allez avoir au moins la possibilité de suivre ce qui se passe dans le marché. Ça me semble évident au point de vue supervision, mais enfin, c'est ce que nous vous soumettons.
4481 CONSEILLER PENTEFOUNTAS : Je sais que le temps nous manque, mais...
4482 On the question of exclusivity -- and maybe hear from Dr. Ware on this point -- if you were to put an objective hat on, I mean would you not see any value in that exclusivity, and it's been argued, would inspire greater investment in creative product because the investor in that product would feel that he would have a greater opportunity to monetize and have a return on his investment?
4483 DR. WARE: Well, that is a classic argument, certainly in innovation economics.
4484 COMMISSIONER PENTEFOUNTAS: Yes.
4485 DR. WARE: But as I said, it has been -- essentially in the field of competition policy it has been resolved in favour of competition. I mean if you have an innovation and you're able to develop property rights in that innovation, there is no reason why you can't monetize those property rights.
4486 COMMISSIONER PENTEFOUNTAS: You will be compensated for sharing your product --
4487 DR. WARE: By selling them to all subscribers. Selling them to a restricted set of subscribers is probably not the way to maximize the returns to that innovation.
4488 COMMISSIONER PENTEFOUNTAS: Unless your thinking is that my profit is in the distribution arm and not in the broadcasting arm.
4489 DR. WARE: Well, in which case, where is the innovation, I mean if what you are really getting is a monopoly return to your market power and distribution?
4490 COMMISSIONER PENTEFOUNTAS: Final question. Brièvement.
4491 Vous avez un forfait numérique et un forfait analogique, mais je n'ai pas de code postal pour chercher les prix comme tels.
4492 Mais le forfait numérique de base me semble plus limité que le forfait analogique de base. Est-ce exact et est-ce qu'il y a une raison pour cela?
4493 M. AUDET : Ce sont des raisons historiques.
4494 Dans l'analogique, le service s'est bâti avec plus de canaux, et la pression était toujours à la hausse. On en parle depuis un moment là, les fournisseurs qui disent, bien, si tu ne me mets pas dans ton package le plus gros, le plus pénétré, je ne veux pas que tu me distribues. Alors, la pression était toujours à la hausse.
4495 Quand on est arrivé en mode numérique, là, on s'est dit, on va faire une tentative...
4496 CONSEILLER PENTEFOUNTAS : On va limiter ça.
4497 M. AUDET : ...avec des packages plus petits, des prix plus petits.
4498 Et c'est ce que j'expliquais tout à l'heure au président de l'audience. C'est qu'il s'est avéré que ça n'a pas eu beaucoup de succès.
4499 CONSEILLER PENTEFOUNTAS : Non. Je comprends ça. Ça semble faire tendance lors de ces audiences-là.
4500 Mais le prix sur votre forfait numérique de base, l'équivalent de votre skinny basic, est-ce que vous avez le prix? Y a-t-il quelqu'un au panel qui peut nous aider avec ça?
4501 M. AUDET : Moi, je ne les ai pas au bout de mes doigts, vous m'excuserez.
4502 CONSEILLER PENTEFOUNTAS : Soit l'analogique ou soit le numérique?
4503 M. MAYRAND : Nous serons heureux de vous les fournir par écrit...
4504 CONSEILLER PENTEFOUNTAS : S'il vous plaît. Ça peut nous aider.
4505 M. MAYRAND : ...pour que vous ayez tout le portrait complet, Ontario et Québec.
4506 CONSEILLER PENTEFOUNTAS : Merci.
4507 Thank you for your patience.
4508 THE CHAIRPERSON: Len?
4509 COMMISSIONER KATZ: Thank you, Mr. Chairman, and good morning.
4510 I want to focus the discussion on new media and in particular wireless. I got a sense that you want us to apply old rules to new media and I take that from your discussion with Vice-Chairman Menzies and your referral to your own testimony in paragraph 69 where you talk about non-traditional distribution platforms.
4511 Are you yourselves in the wireless business today?
4512 MR. AUDET: We are not in the wireless business today. We made a company decision a while ago that we didn't think we had the required strength to take on the risk of launching a wireless service, so we didn't.
4513 What we did do, however, is make Wi-Fi hotspots available throughout a number of our franchises for free use and access by our customers.
4514 Now, I cringe a little bit when I hear you say old rules to new media. This is not about applying old rules to new media. This is about the Commission ensuring that there is fairness in the development of new media.
4515 COMMISSIONER KATZ: But fairness comes from a consumer perspective and the question is: If consumers, your customers, of which there are hundreds of thousands or millions, are not looking at this point in time to benefit from the value of content on a wireless platform, why do we have to put impositions in the wireless sector right now?
4516 MR. MAYRAND: Well, Commissioner Katz, I think the answer is pretty simple. It is because you are dealing with four large integrated players that are indeed in wireless and are indeed actively busily negotiating exclusive rights, including exclusivity to the distribution of the programming card by those rights in Canada, and that is the crux of the matter.
4517 And the Commission has to think about not so much new media as dealing with four groups that are under your jurisdiction and supervision because they are broadcasters and they are telecom facilities operators and they provide integrated services of both.
4518 COMMISSIONER KATZ: But you are competing with them. Would you want the symmetry -- and I got your point about the fact that currently there may not be as much symmetry being argued effectively by some of the folks on the other side, based on your evidence this morning.
4519 But if what you do want is symmetry from a consumer perspective and you don't see it as a competitive disadvantage to the point where you don't feel a need to provide your own customers with access to wireless content at this time, then I question why at this time we have to impose a structure that heretofore has not manifested itself in a need.
4520 MR. MAYRAND: Well, if I may again, it is not because we are not -- we being Cogeco Cable -- competing currently in the wireless space that we cannot suffer from anticompetitive effects of exclusive distribution rights on mobile platforms which include the distribution of any kind of video content.
4521 Any kind of content, whether existing or repurposed, by the same four big players that have this vertical integration, if that is allowed and if a gap is allowed to remain on mobile platforms, where these integrated players can bypass the requirement that has traditionally been applied by this Commission that consumers, no matter what the distribution platform and service is being used by them, will have access to comparable content service, that is the risk and we will start seeing erosion through packaging and bundling of services out of our customer base.
4522 COMMISSIONER KATZ: Okay. My last quick question -- two questions actually.
4523 You referenced the FCC and the FCC saw through an awful lot of this and you provided some evidence that they have put in place some rules as well.
4524 To your knowledge, are there any rules that were imposed on the wireless sector with regard to exclusivity of content in that approval process?
4525 MS BLACKWELL: As you may know, Comcast and NBC do not have any wireless holdings. However, there were rules for online and fairly extensive rules regarding non-exclusivity and ability for other online video distributors to access the Comcast and NBCU data.
4526 COMMISSIONER KATZ: But not on wireless?
4527 MS BLACKWELL: Well, because Comcast does not have any wireless holdings, it wasn't germane.
4528 COMMISSIONER KATZ: Right.
4529 And the last question, I think, is to Dr. Ware.
4530 Maybe I misheard but I thought you were talking about dominant firms in Canada.
4531 Has there been a finding of dominance in this country with regard to content that I missed somewhere?
4532 DR. WARE: If you are referring to a finding by the Competition Tribunal, I am not sure -- I mean not as far as I know.
4533 No, I am just using the guidelines for abuse of dominance that are published by the Competition Bureau, which lists a market share of 35 percent as being potentially dominant.
4534 And in the programming end there are firms both in English-Canada and in Quebec that would meet that criterion.
4535 COMMISSIONER KATZ: Thank you.
4536 THE CHAIRPERSON: Okay. We wanted to start off with you because I thought you had one of the most thoughtful submissions and we obviously -- it spurted the dialogue that we have.
4537 So I am going to call a break now and we will continue after the break. Thank you.
--- Upon recessing at 1029
--- Upon resuming at 1043
4538 THE CHAIRPERSON: Okay, let's resume.
4539 I believe, Rita, it's your turn. You had a question? No.
4541 COMMISSIONER MOLNAR: Good morning.
4542 I do have a question and it goes back to the issue of exclusivity, and while it may appear that I am repeating questions already asked, I think it's a very complex issue and it has some very significant consequences and I think it's important that we understand it as best we can.
4543 Mr. Ware, you made the comment that exclusivity is in fact a bit of a hallmark of competitive markets, where there is a competitive supply and a competitive demand. It's a natural outcome of competitive markets that there be exclusive arrangements to differentiate products and so on.
4544 Did I understand you correctly?
4545 DR. WARE: I wouldn't have put it -- I didn't intend to put it that way exactly.
4546 I think what I said or intended to say was that in a competitive marketplace the presence of exclusive arrangements of various kinds does not raise concern, and the reason is essentially that the players do not have market power, and without the ability to exploit market power it's not really of any -- it's not a concern from a public interest perspective whether or not somebody has an exclusive arrangement.
4547 When there is market power is when exclusivity becomes of concern because it can allow -- generally does allow a firm with market power to exploit that market power.
4548 COMMISSIONER MOLNAR: Okay. We are not talking now the market power in the wireless industry per se, we are talking about market power within the supply of programming; is that correct?
4549 DR. WARE: Yes, exactly.
4550 I was going to make a response to the previous question before the break on that topic, which is that I think the right way to look at this is to think of the relevant market -- a term from competition law -- the relevant market for the delivery of video programming to consumers, to end users.
4551 So that would include all of the old distribution forms plus in some cases wireless distribution of video signals.
4552 COMMISSIONER MOLNAR: We had the guilds here yesterday and there is a very significant supply within Canada of access to Canadian content and Canadian talent to create programming for new platforms and I just want to see if there is some way to reasonably differentiate -- and I think I heard a comment from someone on your panel that, well, if you prohibit all exclusive arrangements, that's easy. But easy isn't always best.
4553 So is there a way to differentiate that where market power in the supply of programming exists and areas within the supply of programming where market power does not exist, can that occur?
4554 MR. AUDET: I'm going to try to give it a first try and I'm sure my associates will want to come back to complete it.
4555 We are in a very peculiar situation here, and I don't want to get into a long history, but, you know, TVA and Vidéotron were joined in 1980 on the basis that it was the French market and it was required for the long-term viability of the TVA system, and it was allowed on that basis.
4556 Later on you had the purchase of Canwest by Shaw on the basis that Canwest was bankrupt and absolutely needed a steward to carry on its mission. So then we approved that.
4557 And in the process of the multiple transactions that Bell did in earlier times Rogers ended up owning television properties that the Commission didn't want somebody else to own.
4558 And now, for unprecedented reasons, suddenly you have Bell owning -- for no salvation reasons whatsoever -- owning the most meaningful stable of over-the-air and specialty services.
4559 So you have here in this country a unique circumstance that, to my knowledge, doesn't exist, or if it does, in very few instances does it exist in other countries in the world. This is a very unique situation, so it requires very unique measures.
4560 I very much doubt that players will stop innovating but I am convinced that if they have exclusive on programs they will take our customers away, and in the end you will have -- not you, but you will witness a remonopolization of a system that this country and this Commission in particular have worked very hard to keep it as balanced as it could be.
4561 So that would be my introductory words on that. I don't know if my associates want to add anything.
4562 MR. MAYRAND: Well, perhaps on the mention you made, Commissioner Molnar, of the possibility that a simply rule might not be the best one, and we are talking here in terms of non-exclusivity of broadcast content on various platforms that are in existence and are operating as we speak in the Canadian marketplace.
4563 I would submit to you that the possible drawbacks of that simple rule that we're advocating, we think, have been certainly overblown in terms of foreclosure of innovation and market rigidities.
4564 In fact, if you look at the analysis that the FCC made of the Comcast/NBCU transaction, the context was different, as we explained, because they did not, Comcast that is, own a wireless operation, but they did have a very active in online distribution of content and the FCC saw fit to deal with the exclusivity issue on that platform.
4565 So I think, turning now, you know, the other side of the coin, if that simple rule does not entail any demonstrated significant and prejudicial problems, the converse -- that is more detailed rules and detailed distinctions -- would, I think, inevitably bring about very, very complicated discussions and a very difficult path or very difficult road to hoe on what the distinction should be based on, how it should be applied and how it should evolve over time.
4566 The third point I would like to make in response to your question -- and I hope I am answering it. The third point is that if you let the horse out of the barn on mobile platforms you will have, I can assure you, huge pains in trying to bring it back in the barn as, if and when that becomes necessary in your mind.
4567 So we think that for all these reasons you are much better off to have a simple rule from the outset.
4568 COMMISSIONER MOLNAR: I understand you want a simple rule, but my question was: Can we address the issue of market power on programming without -- maybe Mr. Ware might want to answer -- without simply imposing a blanket rule that would prohibit all exclusivity on the mobile platform, which is a competitive platform in and of itself and a developing platform?
4569 You know, to foreclose all exclusivity and foreclose that potential innovation simply to have a simple rule is a bit concerning. So can we address the concern without putting in place a blanket rule?
4570 DR. WARE: First of all, I think one has to distinguish between the competitive platform and the non-competitive content so that it's -- as you said yourself, it's not the competition between platforms or it's not the competitiveness of the wireless industry that we are concerned about.
4571 The other observation perhaps I could make in response is to say that there is a concept in competition law of a substantial lessening of competition and so, you know, whereas for example, let's say to show the entire Olympic Games exclusively would clearly come within the category of a substantial lessening of competition, let's say to have a unique podcast or some sort of small broadcast of little significance might not perhaps and it might be that that distinction is a relevant one here.
4572 COMMISSIONER MOLNAR: Okay, thank you.
4573 THE CHAIRPERSON: Michel?
4574 CONSEILLER MORIN : Merci, Monsieur le Président.
4575 Alors, ça va être une question au ras des pâquerettes. Je pense que cette question-là est assez sensible, mais il y a beaucoup d'indépendants qui y tiennent. Je n'ai pas trouvé, malgré une liste très exhaustive que vous nous avez remise ce matin, une réponse à cette question-là, et je vais me permettre de la poser.
4576 Quelle est la position de Cogeco par rapport aux radiodiffuseurs indépendants qui voudraient avoir accès au nom, à l'adresse, au numéro de téléphone de leurs abonnés, de ceux qui souscrivent à leurs services?
4577 Autrement dit, est-ce que Cogeco considère que ces abonnés sont strictement leurs clients et non pas les clients de ces services?
4578 M. MAYRAND : Bien, sur la partie finale de votre question, Monsieur Morin, les clients abonnés à nos services, que ça soit de radiodiffusion, d'Internet ou de téléphone, et dans certains cas c'est les trois types de services, ce sont clairement des clients de Cogeco Câble.
4579 Pourquoi? Très simple. Nous avons une relation et une responsabilité contractuelle avec chacun de ces clients résidentiels. C'est avec nous que les clients traitent et c'est avec nous qu'ils posent leurs exigences, et ce sont nos clients qui nous tiennent responsable de la façon dont nous livrons nos services, que ce soit, encore une fois, des services de radiodiffusion, d'Internet ou de téléphonie ou la combinaison des trois.
4580 Alors, ce ne sont pas des clients, et je ne pense pas qu'on puisse envisager honnêtement un scénario où chaque fournisseur d'un service qui est distribué par un distributeur tel que nous peut traiter notre base de clientèle comme une clientèle qui lui est propre et s'adresser à elle directement en toutes circonstances et en toute latitude. Ça, c'est sur la question de principe.
4581 Imaginez si nos abonnés pouvaient recevoir des coups de téléphone de chacune des 150 chaînes de programmation ou autre fournisseur qui désire s'adresser à eux, imaginez quelle serait la réaction du client de Cogeco Câble qui serait harcelé par toutes ces demandes-là. Il y a un problème pratique incontournable.
4582 Bon, ceci étant dit, on nous dit dans certains milieux : Écoutez, vous devriez quand même fournir des informations personnelles qui nous permettent d'identifier vos clients parce qu'on se trouve à leur vendre des services.
4583 Je précise encore une fois que ce n'est pas le service de programmation qui vend le service, c'est le distributeur qui vend le service, Cogeco Câble en l'occurrence, pas le fournisseur de l'intrant.
4584 Maintenant, si le fournisseur de l'intrant veut développer une base de clientèle qui lui est propre, avec des moyens de distribution qui lui sont propres, il peut déjà le faire par Internet.
4585 Pourquoi aurions-nous l'obligation, une chose que je ne connais dans aucun autre secteur économique, de fournir des bases discrètes de renseignements nominatifs sur nos abonnés à des tiers?
4586 Et, en passant, ça pose, d'après moi, un problème sous le régime applicable à la protection de la vie privée, le régime fédéral.
4587 CONSEILLER MORIN : Mais quand même -- je parle évidemment des radiodiffuseurs indépendants, je ne parle pas des entreprises intégrées -- la relation est quand même établie entre un client qui achète un service, et dans un monde où de plus en plus on offrira le choix par service de distribution, si Astral, si Radio-Canada, si High Fidelity veulent avoir des données personnelles sur les clients auxquels, finalement, ils ont vendu le service par votre intermédiaire, vous pensez qu'au niveau de la confidentialité, au point de vue légal, ça pose un vrai problème?
4588 M. MAYRAND : Je crois que le commentaire a déjà été fait lors de comparutions précédentes à cette audience, mais sans rentrer dans la stricte question de droit, qui, je vous l'assure, va se poser si on se met à donner un accès ouvert à des fournisseurs, ne serait-ce que des fournisseurs dits indépendants, parce qu'il y en a beaucoup, donner un accès direct aux abonnés, au-delà du problème juridique, je vous dirais qu'il y a un problème pratique considérable parce que vous allez avoir des sollicitations pointues pour chaque fournisseur de service qui s'adonne à offrir un service via, dans notre cas, une plateforme de câble, et je présume que ça serait le même cas pour une plateforme satellite, pour une plateforme de mobilité.
4589 Où est-ce qu'on va s'arrêter, Monsieur Morin, là-dessus? Est-ce que les clients, les consommateurs canadiens, vont devoir répondre à des campagnes de publicité discrètes de chaque fournisseur de service utilisant l'une ou l'autre de ces plateformes selon la plateforme utilisée à leur gré, à leur volonté et quand ils le souhaitent? Je pense que c'est un régime qui serait intenable.
4590 Je ne sais pas si Caroline veut ajouter quelque chose sur la protection de la vie privée.
4591 MME DIGNARD : En fait, Monsieur le Conseiller Morin, je rajouterais pour compléter la réponse de mon collègue que ce qu'on voit comme tendance qui provient de nos clients est un souci de plus en plus... un souci de protection de renseignements, de protection de leurs renseignements personnels, des renseignements nominatifs qui les concernent.
4592 Alors, c'est une tendance que l'on voit et qui s'accroît, et les consommateurs, et nos clients par le fait même, sont très soucieux de la façon dont nous gérons, dont nous conservons, dont nous recueillons les renseignements qui les concernent, et posent énormément de questions.
4593 Donc, ne serait-ce qu'à cet égard-là, je vous dirais que, comme fournisseur de service, nous avons, entre autres, une politique sur la protection de la vie privée que nous appliquons, et nous sommes très, très soucieux de ne pas partager ces informations-là, d'une part parce que ça fait partie des règles d'affaires dont nous nous sommes dotés, et d'autre part parce que cela correspond de plus en plus, d'ailleurs, à un souci de nos clients que nous conservions les renseignements qui les concernent puisqu'ils nous donnent ces renseignements-là, mais étant entendu que nous les conserverons, et certainement pas à des fins de sollicitation, à des fins de ventes pour des fins commerciales.
4594 CONSEILLER MORIN : Merci beaucoup.
4595 Ce sont mes questions, Monsieur le Président.
4596 THE CHAIRPERSON: Okay. Well, thank you very much. Let me just clean up a couple of points that came up, the ones that my colleague raised.
4597 The vertical integration companies all equate exclusivity with innovation, saying only by having exclusivity on mobile and internet can we have the necessary innovation. A questionable argument, but assume for argument's sake I buy it, then the question that my colleague posed: Does it have to be across the board or can it not be selective?
4598 We have heard from Astral for instance as a fallback position, like you, they wanted it exclusive but said at least as a background to make no exclusivity for anything that has public funds in it, directly or indirectly.
4599 The FCC takes a different route and they talk about non-replic -- programming that can't be replicated --
4600 THE CHAIRPERSON: I think they have sports in mine. I don't know whether anything else -- nobody has ever given me anything. You talk about marquee programming, that's really what you are concerned about. You are advocating a simple rule because you can't define the thing really as what is marquee.
4601 Is that really beyond our means to do it? Wouldn't a rule dealing only with marquee programming -- and assume we have a hearing to define it or we define it as sports and anything else -- that you make an application to us, or we say marquee and publicly funded programs.
4602 Could one not limit the rule that way?
4603 MR. MAYRAND: If I may try to answer that question, Mr. Chair.
4604 First of all, I don't think we would agree with the necessary presence of public funding to qualify for the exclusionary rule. Clearly Canadian programming now is a widely funded through a variety of mechanisms, some of which would not be considered public, or might arguably not be considered public, including direct contributions to funds, et cetera. So I don't think you want to get into that complication.
4605 In terms of another potential avenue, that I think was explored by some in the context of these proceedings, is to say: Well, anything that is based on video content that is exhibited on one of the regulated platforms --
4606 THE CHAIRPERSON: Yes.
4607 MR. MAYRAND: -- ought not to be the subject of exclusive distribution on any platform. That is perhaps a possibility for you to consider.
4608 It is quite easy to identify content that is shown on conventional television and/or a specialty service and/or a pay service and/or a VOD or pay-per-view service. So to the extent that rights are purchased and applied for distribution on any of these platforms or combination of platforms, the non-exclusivity at the distribution end of the market --
4609 THE CHAIRPERSON: Yes.
4610 MR. MAYRAND: -- should be upheld for mobile.
4611 THE CHAIRPERSON: Which also then would mean, take something like "Têtes à claques", you could have an exclusivity on mobile, because it wasn't born on TV, it was born on the internet.
4612 MR. MAYRAND: Well, it's not so much the birthright, it's, I think in our view in that scenario, in fact whether the service was born as an internet-only service or a DVD service, is that content or the basis of that content, i.e. the trademarks, the characters, the storylines that are underlying this content happened to be used for exhibition on one of the regulated platforms that the Commission regulates at any point in time.
4613 THE CHAIRPERSON: That makes it very complicated. Wouldn't a much simpler rule be what Rogers suggested, if you have it on a television then you can't have an exclusive on mobile or internet?
4614 MR. MAYRAND: Well, I'm not sure that it's that complicated because the rights have got to be set somewhere in a contract somewhere. So I think that, you know, if the rights contemplate the exhibition a particular type of content on one of the regulated platforms, the non-exclusionary rule at the distribution end of the market should apply to all platforms.
4615 THE CHAIRPERSON: The other point, everybody has been talking about a standstill and I think we have heard from everybody who seems to advocate it should apply to renewal of existing arrangements or a dispute about existing arrangements. Now, you are going one step further, you also want it to apply at the outset when you are negotiating new arrangements, if I understand it, to carry something that you hitherto have not carried, especially to avoid head starts.
4616 But assuming I follow that line, you had discussions with my friend about market value -- obviously nobody knows the market value until it is carried -- wouldn't you have to basically make an arrangement that if we granted such a right then it would be subject to you carrying it and paying the asking price until such time as a price is settled and then you make a retrospective adjustment?
4617 MR. MAYRAND: That certainly, sir, is a possibility for new services.
4618 THE CHAIRPERSON: Yes.
4619 MR. MAYRAND: I caution you, though, that this conceptual framework may be envisaged for linear programming services, it's not at all evident to apply that to nonlinear services, because often times programs are dealt with, you know, as a package of individual programs, or even at the individual program level.
4620 THE CHAIRPERSON: I assumed you were talking about linear programming when you talked about the no head start rule.
4621 MR. MAYRAND: Yes. Well, the no head start, in our view, is different from the standstill and, quite frankly, I think I mentioned in response to an earlier question that for us standstill is a very, very critical requirement in this vertically integrated environment and of course applies in the context where there has been a history of distribution.
4622 THE CHAIRPERSON: No, I understand that.
4623 MR. MAYRAND: Okay.
4624 THE CHAIRPERSON: I understand that. But I meant your --
4625 MR. MAYRAND: So for new services we can't talk to standstill, we can't talk indeed of any particular terms.
4626 THE CHAIRPERSON: No, no. You're right. Standstill is the wrong word, but basically in order to avoid a head start you really want to be able to carry it and then talk about the price and settle it later.
4627 That's in essence; right?
4628 MR. MAYRAND: And I think that on the head start issue, certainly based on our experience, very unfortunate in Portugal, we think that the Commission has the ability to say, to certainly vertically integrated groups who want to launch new services, "Well, okay, tell us beforehand if you want to launch a new service and show us that you have indeed made it available to non-affiliated parties and at what terms.
4629 Now, if there is signalling in the marketplace that a new service will be launched and that there is a negotiation going on as to the terms under which this service should be commercially distributed, certainly there is the potential for -- in case of a real problem there is the potential for a dispute resolution on that.
4630 THE CHAIRPERSON: But this becomes very intrusive. As you know, we usually work on a complaint-driven basis, wouldn't it be more logical that if you feel that a head start you come to us and then we -- if we decide to intervene we would say, "Well, you have to furnish it to Cogeco at this and this price and then let's talk about the price" and then do a readjustment later on.
4631 MR. MAYRAND: Well, we don't think it's usually complicated.
4632 But the other side of the coin, Mr. Chair, is that if you have in a vertically integrated environment four big players that can launch pretty well any type of service they want and get the opportunity to launch them first on their platforms, to the exclusion of other platforms, and that we are dealing only with a situation where we are playing catch-up and the service has already been implemented, we are back into the position we were in Portugal where we had to wait more than a year for certain services to be actually made available as well to us as competing distributors.
4633 THE CHAIRPERSON: All right.
4634 In your written reply -- you might reflect on this one because this strikes me what you are just advocating is in effect us putting a notice requirement on vertically integrated companies and getting involved in their launching of programs or not, which is quite different from the hands-off approach that we have right now.
4635 MR. MAYRAND: We will be glad to reflect on that.
4636 THE CHAIRPERSON: Lastly, Mr. Audet, you were adamant that this is not a code, these are rules. Let's not quibble about words. Some of what is here reads to me more like a code. Anyway, I understand what it is, it's principles. You want people to abide by these and then if we have adjudication it would be a question of whether these principles have been abided by or not.
4637 I looked at your code and I would ask you, in light of this hearing, to do a revision of it. I think there are a couple of instances which are clearly overkill and there are certain things -- you reduce it to what is really the essence of what you need and what needs to be done. It would be very helpful for us if we decide to go that way to have something that is close to acceptable and presents a balanced viewpoint.
4638 MR. MAYRAND: We hear you and we will do our best to come back at reply stage in writing on this.
4639 THE CHAIRPERSON: Okay. Thank you very much. It's been very enjoyable to talk about economics rather than talking about the underlying economics. Because this, as Dr. Ware knows, really is a competition issue so I feel I'm back in my old job and trying to balance various interest.
4640 You are the one example we have of somebody who has actually lived through a vertically dominated industry and therefore your experience is extremely valuable. So thank you for your presentation.
4641 MR. AUDET: Thank you for the opportunity.
4642 THE CHAIRPERSON: Okay. I don't think we need to break, why do we have the next intervenor come up.
4643 THE SECRETARY: I would now invite Canadian Media Guild and Canadian Association of Community Television Users and Stations, as well as the Communications, Energy and Paperworkers Union of Canada to come forward to the presentation table.
4644 Thank you.
4645 THE CHAIRPERSON: Okay. Commençons.
4646 THE SECRETARY: We will hear each presentation which will then be followed by questions from the Commissioners to the panel. Each intervenor will have 10 minutes for their presentation.
4647 We will begin with the Canadian Media Guild and Canadian Association of Community Television Users and Stations.
4648 Please introduce yourselves and then you will have 10 minutes.
4649 Thank you.
4650 MS WIRSIG: Thank you.
4651 Good morning, Mr. Chairman and Commissioners. Thank you very much for taking the time to hear from us today.
4652 Merci. Je m'appelle Karen Wirsig, et je suis coordonnatrice des communications pour la Guilde canadienne des médias, un syndicat qui représente 6 000 travailleurs dans le secteur des médias partout au Canada.
4653 With me today is Cathy Edwards of the Canadian Association of Community TV Users and Stations, to my left. Our organizations share concerns about the challenges facing local media and the risks posed by vertical integration.
4654 The Guild's broadcast members work primarily for public and public service stations, CBC, Radio-Canada, TVO, TFO and the Aboriginal Peoples' Television Network. We also have members at the private independent ZoomerMedia and the vertically integrated Shaw Media. Our members are committed to providing quality original Canadian programming. The work they do directly addresses the priorities set out in the Broadcasting Act.
4655 CACTUS was created to help ensure that ordinary Canadians have a voice within the broadcasting system. CACTUS represents independent non-profit community TV broadcasters as well as Canadians who want to set up new community-operated TV channels or who need assistance to access the community channels that belong to broadcast distribution undertakings.
4656 At this hearing, we have comments on the rules for commercial interaction among interested parties and we also urge the Commission to look beyond commercial arrangements to examine the full range of impacts of vertical integration on non-commercial entities.
4657 The Guild has been concerned about the disappearance of professionally-produced local programming for more than a decade. Programming has disappeared in part because of private media consolidation and in part because of both funding cuts and resource decisions by public broadcasters.
4658 The latest restructuring in the industry is yet another form of consolidation that poses the same risks for quality original programming as previous rounds. In this case, it also changes the power dynamic in the industry, putting measures such as the Local Program Improvement Fund at risk.
4659 CBC and Radio-Canada are trying to reverse the trend away from local programming by boosting local TV news. Local weekday newscasts were extended to 90 minutes and weekend local newscasts are being introduced. The LPIF has been instrumental in supporting this expansion in smaller markets. Further, CBC has a five-year plan to find new ways to provide local programming to under-served communities.
4660 We fully support this plan and urge the Commission to do everything in its power to help it come to fruition, recognizing that CBC/Radio-Canada is not likely to get an increase in its parliamentary appropriation in the short to medium term.
4661 The Aboriginal Peoples' Television Network has also boosted news coverage in several communities in the current license term thanks to the increase to the network's subscriber rate granted in 2005.
4662 The LPIF and the subscriber rate accorded APTN are two examples of regulatory action that are essential to sustain diversity of voices, especially within communities that are not well served by commercial broadcasters.
4663 In addition, all independent and public broadcasters need protection in this new vertically integrated environment from discrimination when it comes to distribution of their programming and content on subscription TV and on the internet and mobile platforms.
4664 We propose several such protective measures in our written brief, including:
4665 One, the prohibition against undue preference for BDU-owned programming when it comes to distribution, with onus on the BDU to prove there is no undue preference;
4666 Two, requirement to carry independent channels; and
4667 Three, the mandatory and adequate inclusion of independent channel content in VOD packages.
4668 At the same time, we believe conventional broadcasters, including the CBC, Radio-Canada and TVO, should regard their over-the-air transmission networks as an essential alternative to the pay services of BDUs. Making their signals available directly to Canadians is the best way to ensure fair access to these core educational and cultural services.
4669 As we have demonstrated in previous proceedings, there are economical ways that public and independent broadcasters can share resources to provide OTA signals in smaller communities using digital technology. We are pleased to note that Shaw Media has committed to share their towers and to explore sharing of their digital transmitters in smaller communities as part of the tangible benefits package of their purchase of Canwest.
4670 We urge the Commission to continue to facilitate the sharing and expansion of OTA infrastructure across Canada as one way to address the dangers of vertical integration. Ensuring access to free local and public TV signals is more effective than legislating a skinny basic cable package.
4671 Cathy will now elaborate on the specific challenges posed by vertical integration in the community sector.
4672 MS EDWARDS: Diversity in the broadcasting system can be measured by a healthy abundance of small players, who are rarely in a position to demand fair opportunities or to negotiate adequate compensation or carriage where there is intense vertical and horizontal integration. Specific provisions and regulations are still required.
4673 With respect to the community sector, we would like to make two points we have made before and that are more important than ever:
4674 The first is that the more vertically and horizontally integrated BDUs become, the more illogical it is for them to control virtually all the financial resources for community television. This is the one element of the system that is meant to serve as a democratic safety valve outside the main ownership groups. The community sector in every other country is defined by non-profit, community ownership. In fact, this defines Canada's own community radio sector. This anomaly needs to be addressed.
4675 Second, the community sector is uniquely positioned to produce the most local content for the least money -- six to eight times as much -- and at higher quality than ever before, thanks to increasingly cheap and yet high-quality equipment. We are also positioned to provide the most diversity of opinion and content, because every Canadian can participate without gatekeeping.
4676 Community media has the potential to offer the most effective balance to excessive vertical and horizontal integration, but only if it is truly independent.
4677 We note the industry working group designated by the Commission to develop a Code of Access Best Practices that might safeguard citizen rights on BDU channels included no member of the general public, and that none of CACTUS' suggestions regarding this Code have been adopted by this working group. We have written to the Secretary General more than once about this issue.
4678 The CMG and CACTUS therefore make the following joint recommendations to enable the public and community sectors to fulfil their local programming mandates and ensure a true diversity of voices:
4679 First, to adjust the Local Programming Improvement Fund by increase its size to ensure enough money is available for small and independent players. We suggest an increase of BDU contributions from 1.5 to 1.75 percent of revenues and we note that as a result of the recent round of consolidations fully one-third of LPIF recipients are now owned by BDUs.
4680 Next, open the LPIF to applications by independent community broadcasters, of which there are eight in Canada -- seven over-the-air and one on cable. On average these channels are under-funded by $400,000 so a little more than 3 million could fully fund them. This cost might be covered either from the 0.25 percent increase referred to above or it could be covered by allowing BDUs to direct some of their expenditures on access production, as defined under the new community TV policy, to an envelope within the LPIF reserved for non-profit community license holders.
4681 BDU direction of some of their local expression funding to independent community-operated services which -- unlike BDUs' own community channels, are available over-the-air, on cable, on the internet, and soon on Bell satellite -- would comply with the Commission's preference for program distribution on a non-exclusive basis.
4682 We agree with you, because it has never made sense for BDUs to operate competitive community channels. They are meant to serve as a digital townhall for the whole community, like a public library, not as part of subscription services.
4683 And we note that Bell endorsed a non-branded model of community production at the Community TV Hearing last year.
4684 Our third recommended adjustment to the LPIF is to give public service broadcasters access to it in large markets for incremental local programming; that is, additional local programming hours compared to what they are doing now in a given market.
4685 Our second main suggestion is that there may be additional mechanisms open to the CRTC to support local production beyond the Small Market Fund and the LPIF, so our second recommendation is that the CRTC hold a proceeding on the state of broadcasting in small markets and how it can be better supported.
4686 Lastly, we suggest that you level the playing field for satellite carriage, as per the Commission's aim to establish norms so that all players have fair opportunities to negotiate deals of carriage. We note that only community broadcasters are currently excluded from the new Satellite Carriage Distribution Policy, 2011-295, because of our simultaneous exclusion from eligibility to the LPIF.
4687 While we applaud the Commission's request that Bell carry the seven OTA community broadcasters now in existence, these seven are unlikely to be carried on Shaw. Furthermore, any new community broadcasters have no guarantee of carriage on either service. This puts the community sector at a disadvantage and runs counter to the Commission's preference that programming should be available on a non-exclusive basis on all platforms.
4688 We thank you for the opportunity to discuss the impacts of vertical integration on local programming and content diversity, and we look forward to your questions.
4689 THE SECRETARY: Thank you.
4690 We will now proceed with the Communications, Energy and Paperworkers Union of Canada.
4691 Please introduce yourselves, and you will have ten minutes.
4692 Thank you.
4693 MR. MURDOCH: Thank you, Madam Secretary.
4694 For the record, my name is Peter Murdoch, and with me is our legal counsel in this matter, Monica Auer.
4695 CEP is Canada's largest communications union. Thousands of our members work in Canadian broadcasting and telecommunications companies, from coast to coast. We support growth that strengthens Canadian broadcasting.
4696 I will begin my remarks by describing CEP's approach to broadcasting policy, and then address the five areas specified by the CRTC, as well as those of concern to CEP.
4697 Let me go off the record here, though, to say how much I enjoyed, and I thought educational, the presentation of Cogeco and your discussions with them. It was excellent, and I learned a lot. Thanks for that.
4698 Like Parliament, CEP wants Canadian programming produced and available to Canadians through the Canadian broadcasting system. It is trite but true that content is king. Distribution systems without content are merely empty pipes.
4699 Equally fundamental is the fact that broadcasters and telecommunications companies obtain rare privileges when the CRTC grants their applications for licences that rely on the communication spectrum owned by Canadians. All Canadians are entitled to a solid return on this invaluable public resource.
4700 Balancing competing returns on investments is why the CRTC exists, to ensure that rationally anti-competitive behaviour of a small number of licensees is moderated to serve the general interests of all Canadians.
4701 CRTC Key Area 1: Perceived problems and benefits of vertical integration.
4702 To address the CRTC's first question about vertical integration's perceived problems and benefits, therefore, we note that Canadians have heard for more than 30 years that larger broadcasting structures would deliver net benefits to Canadians.
4703 Like many others, we have been looking for these benefits. Where are they? Thousands of jobs have been eliminated. Foreign producers earn more money from our broadcasting system than Canadian content creators. Our mainstream private TV services now carry fewer hours of original Canadian content than before. Four companies hold the survival of all independent broadcasters in their hands.
4704 Consumers have paid a heavy price for more concentrated ownership and vertical integration. Deregulation has left them at the mercy of BDU rates soaring well past the rate of inflation. The only content that seems to be king in Canada is foreign or focused on sports.
4705 As for diversity, plurality and professional broadcast journalism have decreased, replaced by the illusion of plenty and advertiser-sensitive promotional content.
4706 Knowing these facts, it has been surprising to hear questions over the past few days suggesting that concerns about the detrimental impact of vertical integration lack proof. It would be naïve to expect vertically integrated companies to publicize such problems. But Canadians are surely entitled to know why the Commission believes that vertical integration has been so positive.
4707 In our view, where and what are the clear, significant and unequivocal benefits of vertical integration for Canadians and Canada's communication system?
4708 The problems we have mentioned are not perceived, but real. They require solutions to achieve predictable, transparent and accountable outcomes to serve Canadians' interests and achieve Parliament's section 3 objectives.
4709 CRTC Key Area 2: Distribution of exclusive content.
4710 Exclusivity is another problem caused by vertical integration. It is to be expected that companies like Bell and Shaw will fight to maximize the profits on their programs. The current struggle is the marketplace at work, except that this market structure is so concentrated that a laissez-faire approach simply gives the largest participants the most advantage.
4711 And where BDUs once competed on the basis of technology, speed, clarity, size and price of their offering, now they can compete on content. This should make everyone nervous.
4712 Vertically integrated companies' enormous scale and the lack of meaningful numbers of meaningful competitors means that they can extract the highest profit from consumers. Surely the motive underlying exclusivity is higher profits, but at the cost of consumers. In an unregulated price environment, consumers are paying for exclusivity, and our concern is that these price increases reduce accessibility.
4713 Without the CRTC's intervention, we risk absolute control by a very few. Allowing such power to consolidate benefits those who hold it, but harms everyone else. In reality, exclusivity is just a slightly shorter word for discrimination, levied against those who can't afford, don't want or don't understand how to swap out multiple SIM cards or devices.
4714 New technologies should give Canadians access to more Canadian content, anywhere and at any time. We acknowledge the complexity of this issue and have two recommendations.
4715 The Commission should require that all programming made directly or indirectly with tax dollars be available at the same time, to all Canadians. Further, if exclusivity is to be the flavour of the day, the CRTC will have to start regulating rates.
4716 CRTC Key Area 3: Special measures for independent broadcasters.
4717 As for independent broadcasters, CEP supports ex ante measures that ensure their fair treatment. We have yet to see evidence that ex post special measures are more effective or more efficient in terms of timing, resources, predictability and, most important of all, accountability.
4718 You have already heard from CHCH and CHEK, and IBG will be appearing at the end of this hearing. These stations and the IBG members are better placed to address their specific concerns, but CEP supports Canadians' access to these services on the same terms that BDUs give their own services.
4719 CRTC Key Area 4: Improvements to existing regulatory measures.
4720 CEP supports improvements to existing regulatory measures. We have heard the CRTC's position on Administrative Monetary Penalties very clearly.
4721 Before Parliament gives the CRTC AMPs, should Canadians not know why? Ample evidence from our nearest neighbour suggests that AMPs' deterrence effects are minimal, perhaps non-existent. Just over a year ago, 25 people died after a coal mine owner ignored $2 million in proposed AMPs, for more than 1,300 safety violations.
4722 How will AMPs be more effective than the CRTC's existing regulatory measures? After all, if conditions of licence, mandatory orders, calls to public hearings and prosecutions are being fully used but are not deterring non-compliance, the problem may not be with the tools, but with ownership structures where profits far outweigh any penalty that can be imposed, short of competitive licence renewals.
4723 That said, CEP supports the CRTC's enforcement of its regulations and licences, through all of its current legislative tools.
4724 CRTC Key Area 5: Code of good business practices.
4725 The fly in the ointment when it comes to enforcement is clarity. In our experience, codes of practice can work, but only if they are crystal clear, have specific and substantive purposes, are accepted by all concerned, and have benefited from public consultation.
4726 This is the process set down by the CRTC in Public Notice 1988-13 for considering industry codes.
4727 But, of course, any code, or regulation for that matter, becomes moot without enforcement.
4728 CRTC Key Area 6: Skinny basic.
4729 Finally, we support the skinny basic concept. As baby boomers begin to retire on more limited incomes, we believe they will support it too.
4730 The general lack of a skinny basic service is why, in our view, the CRTC must step in. Your intervention will provide Canadian consumers with more, and more affordable, choice. We are confident that, with your guidance, the four companies that control roughly four-fifths of Canada's broadcasting revenues, and that support Canadians' choice to have programming everywhere on any device, will be able to develop and implement a stripped-down package that includes the programming services most relevant to Canadians every day; namely, local over-the-air programming services, publicly funded services, and the limited number of services under 9(1)(h) status.
4731 CEP Key Areas: CEP has two key areas of its own, which we have addressed in greater detail in our written submission.
4732 CEP Key Area 1: Journalism.
4733 Our main concern is that, despite the appearance of plenty, media plurality is actually decreasing. Concentrated media ownership has reduced the number of distinct editorial voices and has reduced journalistic resources. Endlessly churning and re-churning the same news, on more distribution platforms, does not give Canadians access to more local, regional, national or international news about matters that affect Canada and Canadians.
4734 To the south, a detailed study published earlier this month by the FCC found a shortage of in-depth local journalism. U.S. TV stations have reduced their staff and news program budgets, and have cut back on in-depth and beat reporting. These cuts have not been replaced by citizen or non-profit initiatives.
4735 Canadians have no idea what is happening to broadcast news in this country. If Canada does not undertake research of its own about the news media, Canadians will be left with the illusion of plenty, while they are slowly starved of solid, well-researched journalism about the matters that affect their daily lives.
4736 CEP Key Area 2: Media Institute.
4737 We have, therefore, proposed that the CRTC allocate 1 percent of all vertical integration transactions going forward to fund objective empirical research about news, to be undertaken by a new institute for media pluralism, similar to that of the well-respected and non-partisan Pew Foundation in the United States.
4738 Whether gathered by the CRTC or the independent media institute that we have proposed, more facts are clearly needed. To paraphrase comments made to you in 2007 by the head of CTV, you can't regulate what you don't measure.
4739 To conclude, Mr. Chairman, Vice-Chairman, Commissioners and Commission Staff, CEP has expressed grave concerns about the impact of vertical integration for a number of years. Our concerns remain. Solutions to address the detrimental effects of vertical integration exist, and we look to you to ensure that your families and neighbours enjoy a stronger and healthier communications system in this country going forward.
4740 Thank you.
4741 THE CHAIRPERSON: Thank you for your presentations.
4742 First of all, CACTUS, in Point No. 2 on page 5 of your oral presentation, you suggest that we take money out of the Access money that BDUs spend on new community policy and put that in an envelope within the LPIF reserve for non-profit community licence holders.
4743 You were before me --
4744 MS EDWARDS: Right.
4745 THE CHAIRPERSON: -- and you fought like a lion for these Access holders to get some money. Now, we have partially heeded your advice, and now you suggest that that money can be better used?
4746 MS EDWARDS: No, that money isn't under the control of communities, it's up to BDUs to make those spending decisions. We don't regard that 1 percent as accessible to these independent community channels.
4747 We have had, for example, Rogers tell us point-blank already that none of the Access programming expenditures will ever go out of house from Rogers, and we are exploring that with the other companies now.
4748 THE CHAIRPERSON: I'm sorry, under the Community Policy, 50 percent of that Access money has to go to non-BDU productions, right?
4749 MS EDWARDS: But BDUs decide how that is spent, and there are no controls over how it spends.
4750 There is nothing to stop them from, for example, paying freelancers to produce programming that they want and call it Access production.
4751 It's not the communities making those decisions.
4752 For example, in the code of best practices, which is under review right now, there is no reference to the community advisory groups stated in the new policy. There is no mechanism in there that communities have any input into how that 1 percent will be spent.
4753 It's not effective unless it's really under community control.
4754 THE CHAIRPERSON: In your view, since it is not going to be under community control, we might as well put it into LPIF.
4755 MS EDWARDS: In a reserved envelope within LPIF, as the Fédé TVC proposed last year, and make it available for non-profit community licence holders, just like the Community Radio Fund of Canada already operates.
4756 THE CHAIRPERSON: Okay.
4757 Mr. Murdoch, in paragraph 19 you talk about prosecutions. What prosecutions are you referring to?
4758 You are against us having AMPs, and you say that we have -- I can see conditions of licence, mandatory orders and calls for public hearings. All of that I am familiar with. What prosecutions are you talking about?
4759 MS AUER: Thank you, Mr. Chairman, for the question. We are referring to the prosecutions that were initiated by the Commission between 1968 and 1991. To my knowledge, there were 25, 21 of which were won by the CRTC.
4760 THE CHAIRPERSON: Prosecutions for what? Surely not with respect to programming.
4761 MS AUER: Yes, with respect to breaches of the Canadian content regulations, with respect to election advertising, with respect to a number of matters that constituted breaches of the regulations.
4762 THE CHAIRPERSON: Oh, you are using prosecution in that sense, getting an order from the Court forcing the broadcaster to do certain things that they had failed to do.
4763 MS AUER: Right. A number of broadcasters, for instance, breached the Canadian content requirements. The Commission took them to Court; the Court levied a fine.
4764 THE CHAIRPERSON: And you feel that if we get AMP power, this is not going to lead to greater adherence to CRTC rules?
4765 I gather, from what you are saying here, that you feel there is no need for AMPs.
4766 MR. MURDOCH: No, but I don't think it's a cure-all. Maybe it will help to leverage some change in behaviour, but right now, with these four companies, there is a lot of cash in the bank, and history has been -- and we just pointed to one, albeit a mining example in the States, but some of these companies can afford to take a fine.
4767 But, having said that, maybe it will help. Maybe it will help, Mr. Chair.
4768 THE CHAIRPERSON: Assume that there is a bill before Parliament suggesting that the CRTC get AMPs, and you are appearing. Are you for or against the CRTC getting AMP power?
4769 MR. MURDOCH: We would have to see the bill, but my sense is -- as I say, anything that is going to help us and give us a little bit more muscle, we would be for it.
4770 THE CHAIRPERSON: Obviously I didn't mean the actual bill, I am just talking --
4771 MS AUER: Of course, and what really matters most is enforcement, enforcement using whatever tools are available.
4772 THE CHAIRPERSON: Okay.
4773 Steve, do you have some questions?
4774 COMMISSIONER SIMPSON: I do. Thank you very much.
4775 Good morning. It's always very nice to see you here.
4776 I would like to start off by asking a question of Ms Wirsig.
4777 You said in your oral presentation this morning that the Commission must -- I am paraphrasing -- take measures to ensure that independent broadcasters do not become vertically integrated, or part of vertical integration.
4778 I presume you were inferring private broadcasters.
4779 This was in your oral presentation. I made a note that you said: "We must ensure that independent broadcasters do not become vertically integrated, or part of vertical integration."
4780 Is that correct?
4781 MS WIRSIG: The meaning was meant to be that they don't get hurt by it.
4782 COMMISSIONER SIMPSON: They don't get hurt by it.
4783 MS WIRSIG: Discriminated against in this new theme.
4784 COMMISSIONER SIMPSON: That's what I wanted to understand, because I was beginning to get the drift that you were inferring that the Commission should take a position where they would not allow themselves to become part of a vertically integrated company, and I was going to question you as to how we would do that.
4785 You indicated that we have to revisit community television policy, Ms Edwards, and you also indicated -- and my line of questioning is going to be to get a better understanding about that and what you would like to see as an outcome of that review, and also get a better understanding of what I am picking up, which is that there is a difference between a BDU-operated community television undertaking and your interpretation of a community undertaking.
4786 You are implying that your community group requires funding from LPIF, and it seems to me that that's just transferring money from one pocket to another with the BDU; and if you are not getting that money, why?
4787 MS EDWARDS: What has changed since the community television review last year -- and we did raise these points then, and they weren't applied in a way that we really felt was effective, but they are even more relevant now; that is, it makes no sense to us, now that BDUs own the majority of private broadcasting services in the country, why they should also control almost all of the financial resources in the system for community television.
4788 Every other country that recognizes and has a separate community sector, it is founded on an ownership principle that those are owned by communities.
4789 I think that our Broadcasting Act, in talking about having three elements -- public, private and community -- implies the same thing, that it is an ownership-based definition.
4790 I think, back in the seventies, when community channels were put under the stewardship of cable companies, it was at that point an experiment, and that experiment was copied around the world, with the vital step forward that those channels were put under community control.
4791 So the more vertically integrated and the more powers BDUs have, the less sense it makes that they also control the community sector; and secondly, the more important a truly independent community sector becomes as a grassroots and democratic outlet for democratic comment that is outside those ownership groups.
4792 That is one comment, and that is what has changed since the community television review.
4793 It's not taking money from one pocket of the BDU and putting it in another pocket, it is taking money from the BDUs right now, which they collect from subscribers for community expression, and it is genuinely putting it in the hands of groups in communities to decide how programming decisions are made.
4794 COMMISSIONER MENZIES: And that is not happening now because -- why?
4795 MS EDWARDS: There are seven community television licence holders that are non-profit community groups. There are over 150 community radio channels, but there are only seven community TV channels.
4796 It's just because they don't have access to the LPIF. They don't have access to any BDU revenues. They don't get value-for-signal payments.
4797 They rely on bingos. They are in tiny, tiny markets where private broadcasters can't make a go of it.
4798 So there needs to be some mechanism to enable more of them to launch.
4799 We note that in the community radio sector, the need for some access to public funds has been recognized, and the Community Radio Fund now gets regular tangible benefits, payments and so on.
4800 The community TV sector, the independent, true community sector, has no such access.
4801 COMMISSIONER MENZIES: By how you are sort of slicing the apple right now, I am getting the very distinct feeling that you would prefer to see the BDUs get out of the community television game and see that the community television business be turned back to the community with funding from LPIF.
4802 Is that the basic idea, in a perfect world?
4803 MS EDWARDS: Absolutely, but it's not just a philosophical idea and a practical idea that it makes more sense for communities to run community TV, there have been problems ever since there has been competition.
4804 With cable companies no longer being effective monopolies and getting other BDUs offering IPTV services and so on, what we are seeing is that the pot of BDU money that could support the community system is being split up among multiple BDUs, who are all trying to offer competitive services, and with cable head ends closing, 80 percent of the studios in Canada are gone. All of this money is being consolidated in big centres like Toronto, Vancouver and Montreal.
4805 So they are zone-based. They are regional services, they are not community services any more.
4806 And unlike the Commission preference, as stated in this hearing, they have exclusive programming. They are not sharing that. It makes much more sense to take those tiny pockets of money that are all going on competitive regional services and put them back into the communities, so that we can have one shared, common, digital townhall platform, with adequate resources to maintain them in small communities.
4807 The money is adequate, but not if it's split up among multiple competitive companies. It just doesn't make sense.
4808 COMMISSIONER SIMPSON: We had a presentation yesterday from the people who own CHCH and CHEK, and what I found particularly interesting about their presentation, as it applies to your group, including Mr. Murdoch and his group, is that they are two rather solitary organizations in a very networked-up, vertically integrated world, and they seem to be clawing their way out of the ashes into becoming a very interesting new type of local television.
4809 I look at what they are doing, and it is expansion from a more robust, sincere form of local coverage of news into community, and wonder if your goal is not backing into an area that they are finding some comfort in providing on a more commercial basis.
4810 Would you like to comment on that?
4811 MS EDWARDS: I am not quite sure what you meant by "backing into". Sorry.
4812 COMMISSIONER SIMPSON: The more robust a community station becomes with the benefit of public funding derived from BDUs or from LPIFs as you are proposing, whether you wind up in the course of pursuing your goal and winding up, finding yourself on a commercial basis competing with this new -- what seems to be a new emerging form of community for-profit television.
4813 MS EDWARDS: I am not aware of any for profit community TV channels. I mean CHEK is a private independent broadcaster. I think they have different mandates. One is to give media literacy training to the public and let them express themselves. The other is to produce professional content.
4814 Then the other thing is community channels have to meet a 60 percent local production requirement. That doesn't apply to private broadcasters. I mean it's a completely different mandate. I don't see the overlap or the competition. They have always co-existed in markets across Canada like when the cable community channels really were open access platforms they coexisted with local private broadcasters and provided two totally different kinds of content.
4815 COMMISSIONER SIMPSON: Well, time will tell. It seems that what organizations like CHEK are doing are moving the dial substantially from, you know, the minimums of local programming to a much greater percentage. I think Mr. Murdoch might have a better handle on what I'm speaking of there.
4816 But beyond their news commitment they are now getting into tabloid television, daytime programming and the like, much along the line of community access where the SPCA is finding itself all of a sudden having available to them a 15 minute or half-hour segment on what was normally a very restricted access private television station when it belonged to a larger network.
4817 Again, I'm not saying that you have conflicting objectives -- mutual objectives, but coming at it from a private versus publicly funded venue. And I just asked if you had any comments to share on that.
4818 MS EDWARDS: Well, it is interesting that you bring it up because Karen and I were just talking about there is a media conference next year.
4819 It's been in the back of my mind for years that rather than see, for example, local CBC channels close in small communities, wouldn't it be interesting if they could be kept open, maintaining a couple of core staff?
4820 Like on the community channel model you always have a few professionals that train people. But then have it supplemented by voluntary labour to keep those small channels open so that you might have a public community partnership.
4821 We are certainly not adverse to that. We are exploring new models all the time.
4822 In fact, one of the written intervenors to this process was -- I think it's the Northwest Territories and Nunavut wanted to have their legislative services guaranteed carriage on satellite and we just got, thanks to the Commission's decision with the Bell CTV transaction, Bell will be carrying seven over-the-air community channels starting next year and we know that the Hay River channel in Northwest Territories doesn't have a full schedule.
4823 So I was going to trot out of this hearing and give the legislature a call and wonder whether there is a chance that maybe their programming could go on that service on Bell and share a service.
4824 So we are looking for those kinds of partnerships all the time.
4825 COMMISSIONER SIMPSON: M'hmm, great. Thank you.
4826 Mr. Murdoch, first of all, I commend you for the volume of documents keeping the paper workers gainfully employed. It was a lot of good reading, empirical evidence abounds.
4827 I would like to ask you some questions.
4828 First of all on the issue, your whole presentation completely inverts the focus of restricted access which seems to be the theme of this hearing so far from the other competitive BDUs and television stations to a much more internal look where you are saying that the downside is a greater restriction, you know less plurality and much more of a concentration of voice with respect to news creation and distribution.
4829 But my first question is to do with the transactions that we have seen this year with Shaw and Bell.
4830 Operationally, we know that acquisitions bring about the benefits of deficiency. But they also bring stability.
4831 And I'm curious as to why you feel that there is such a reason for dire concern when this kind of concentration that we have witnessed in the last year has actually brought stability back to the broadcasting industry and, most particularly, with CanWest which was a problem for everyone.
4832 MR. MURDOCH: Okay. Well, let's start first with CanWest.
4833 In our view, and I think it's backed up -- you know Global was not going broke because of its television production. It was just overloaded with debt. The problem was surfacing debt, not Global Television.
4834 But in every instance where we have had a purchase, and you can think of probably the most alarming one was here a few years ago when CTV bought CHUM and remarkably on that very same day, 281 people lost their jobs, we have seen about 30 percent of our membership in Global go out the door and not because they voted to leave the union but because the employer voted them out the door, 800 people at the CBC.
4835 So it hasn't been good days for employees and, I would argue, for journalism as a result of concentration of ownership, otherwise called vertical integration I suppose.
4836 So that's one of our concerns.
4837 The other concern, I think, that we have is that -- and I think the jury might be out here a bit, but as we see the multi-platforming there is not a lot of job creation going on to service mobility, to service the internet. It's the same folks that are producing the news for the newspaper or for the broadcaster. That news is just going on many platforms but we don't see a lot of jobs being created.
4838 So while the employer is deriving revenue, okay, you know, no problem there, we don't see job creation as a result of that revenue increase. It's just it's not happening.
4839 There are some -- I'm not saying there isn't some specialties in the sense of being able to produce for the web but that job creation just isn't there in any kind of significant numbers.
4840 COMMISSIONER SIMPSON: Is that a function of vertical integration or is that a function of technology change?
4841 Because we have seen that happen in the automotive industry, we have seen it happen in a great many -- by the publishing industry where the whole value chain from creator of content to publishing of content you know has vastly changed.
4842 You know, and I think in Global -- you know the one you just made reference to, it seems that a lot of the hollowing out of the news business came in the packaging of news. But are you saying that it was also in terms of those who gather it?
4843 MR. MURDOCH: Yeah. Well, I am saying, certainly there is some as a result of technology. We understand that.
4844 But I'm talking about, you know, the old expression "feet on the street", reporters that are supposedly out there getting the news, particularly local news. We see communities from, you know, Halifax to Lethbridge kind of lose people who were reporting the news of their local community.
4845 So that's not a function of technology. That's just a function of commitment to the communities that they are supposed to serve.
4846 Granted -- granted, Commissioner, we have lost some jobs to technology and, you know, we are not the buggy-whip people. We understand that that's going to happen.
4847 OMMISSIONER SIMPSON: Just you know you are fond of empirical measurement but, you know, when I look at a young man growing up, I grew up with three radio stations or, sorry, three television stations and six radio stations in the market I grew up in. There is significantly greater sources of content now than then.
4848 I look at the broadcasting industry today just in television and we are looking, even after vertical integration, at not just the same amount of outlets as before, just different owners, but we have seen more outlets spring up, both domestic and foreign services that are coming in.
4849 To sort of finish my point, 20 years ago most of those services relied on centralized services like BN and CP and Reuters and over the last 20 years have evolved into becoming much more self-sufficient with respect to their newsgathering.
4850 I'm still -- you know, I'm just trying to throw that out as, you know, a piece of empirical evidence going the other way.
4851 MR. MURDOCH: Well, first of all, you know I would say once again and just repeat that it's the same content on a whole variety of platforms. So even though there might be more platforms, we are getting the same content.
4852 The other thing is that some of these -- for instance, let's take the specialty channels. There are 40 specialty channels that have one or zero employees registered to them -- 40 specialty channels, one or zero employees.
4853 So while there might appear a plurality of stations, in fact the chances for employment for the young star-struck people coming out of journalism schools, it's getting pretty depressing. So that's a concern to us.
4854 And I guess the final concern I just want to raise in terms of the exclusivity thing is my concern there, it happened -- Mr. Menzies might know in the newspapers -- is that if this gets passed on down, as Cogeco was suggesting to the consumer, we are going to end up with -- you know, television is a mass media.
4855 And so for those people who can't go to the ball games, who can't go to the hockey games, who can't go to the concerts, who can't go to the theatre, they get their entertainment out of the television set. If that becomes too expensive we are going to have people drop off because they can't afford it. That's it. They won't be able to afford it.
4856 And accessibility to the only source of entertainment to the most disadvantaged citizens is going to disappear. I think we have a duty that if they are going to have exclusivity that somehow we have got to start to regulate some of these prices for the BDUs because they are going to put a lot of people sitting alone at home with no form of entertainment.
4857 COMMISSIONER SIMPSON: Thank you very much. I have just two more questions.
4858 Mr. Murdoch, I have one for you and one for CACTUS.
4859 I was wondering if you -- going to your key area of three special measures for independent broadcasters, you have a -- and I think commendably, you know, the union has been extremely progressive in the resuscitation of CHEK and brings with that some very unique capabilities to contribute to what you think should be special measures for independent broadcasters.
4860 And I am wondering if, from that perspective, if you would be interested in putting a written submission together that is unique to that particular point of view that maybe some additional information to this code that we are looking for is simply because it is so unique and it seems to be working.
4861 MR. MURDOCH: I am going to turn this over to Monica.
4862 COMMISSIONER SIMPSON: Yes.
4863 MR. MURDOCH: Just let me say, I find it interesting in some ways that the success of CH and CHEK is admirable and certainly encouraging. But you know you would think that -- and I appreciated your comments to CACTUS on that level -- but you would sort of think that it would encourage the major broadcasters to spend more on local news. With the success of local news why haven't they got in the ballgame more?
4864 I mean that's the interesting point here because they are, you know, making so much money on foreign content.
4865 But Monica, just...?
4866 MS AUER: Thank you, Commissioner Simpson, for that question.
4867 We had the pleasure of watching Mr. Millar and Mr. Pollard yesterday and thought they did an excellent job of representing their concerns. We would certainly be prepared to provide in reply some comments on the notion of the status of independent broadcasters in a vertically integrated broadcasting system.
4868 COMMISSIONER SIMPSON: Terrific. That point of view would be very well received.
4869 A last question for CACTUS: You had talked about the industry working group and got very clearly the feeling that citizen rights, citizen input was just not there. You had apparently -- you had indicated you had commented on this to the Commission through the Secretary General.
4870 Did you get a response and, if so, what was it?
4871 MS EDWARDS: Well, as you know, the Community TV Policy stipulated that there would be an industry group set up to develop a code of access best practices.
4872 We welcomed the idea that there be a code but we found it kind of ironic that the reason the code was deemed necessary was because of past abuses and, yet, on that five-person panel they were all representatives of cable companies. There was no representation of the public interests at all.
4873 So the Chairman made a note of that at one of the hearings and did ask that we be consulted. That consultation meant that the cable industry working group didn't invite us to any meetings face to face or call us on the phone or interact with us in any direct fashion.
4874 They sent us a draft of their code and we sent back both comments on their code where we thought that there was potential problems as well as a sample of the kind of code that we were looking for. We received no direct feedback from them in any way, again no direct interaction or opportunity to discuss or have dialogue.
4875 And now that their code has been posted with very few modifications -- it's almost identical to their original proposal with none of our suggestions as a public review -- now the public has the chance up until September 3rd to comment. So we just found that that requirement to consult really didn't result in anything.
4876 We did write saying to the Secretary General the first time saying, "Look, we think we should be full working members and probably the Féderation in Quebec should as well" and I know that the Féderation also wrote.
4877 And we got a letter back from an employee. I have forgotten what that first letter said but it wasn't a rendering of the Commission per se.
4878 So we wrote again.
4879 In fact, the Secretary General said, you know, write us again and make it explicit that you would like the Commission to make a ruling on this. And we did so and we have never heard back.
4880 COMMISSIONER SIMPSON: Thank you very much.
4881 THE CHAIRPERSON: You leave out a rather important part which is the code does not enter into force until approved by us. And there is now public consultation and you are part of the public. So I presume you will comment on it and the final product will bear out the code as amended through the public consultation process.
4882 MS EDWARDS: I hope so.
4883 THE CHAIRPERSON: Okay. Thank you. Those are all our questions for you today.
4884 I understand CBC is in a hurry and so we will deal with them. But let's take a five-minute break rather than dealing with the CBC in the afternoon.
4885 Thank you.
--- Upon recessing at 1205
--- Upon resuming at 1211
4886 LE PRÉSIDENT : Madame la Secrétaire, commençons.
4887 THE SECRETARY: Thank you, Mr. Chairman.
4888 We will now proceed with the presentation by the Canadian Broadcasting Corporation/la Société Radio-Canada.
4889 Please introduce yourselves for the record, after which you will have 10 minutes for your presentation. Thank you.
4890 MR. LACROIX: Good morning. Thank you very much. Thank you for staying also and doing us before lunch. We greatly appreciate it.
4891 Monsieur le Président, Messieurs les Vice-présidents, Mesdames et Messieurs les Conseillers et employés du Conseil, bon matin.
4892 Je m'appelle Hubert Lacroix et je suis le président-directeur général de CBC/Radio-Canada.
4893 Je suis accompagné, aujourd'hui, par :
4894 - Steven Guiton, vice-président et chef des Affaires réglementaires;
4895 - Robert Trempe, directeur général des Revenus, Télévision de Radio-Canada;
4896 - à ma droite immédiate, Jack Tomik, directeur général des Revenus, CBC Television; et
4897 - Bev Kirshenblatt, première directrice, Affaires réglementaires.
4898 Nous sommes très heureux de l'occasion qui nous est donnée ici aujourd'hui de venir discuter d'intégration verticale dans le système canadien de radiodiffusion.
4899 CBC/Radio-Canada s'est transformée considérablement au cours de la dernière décennie, et elle fonctionne maintenant comme un radiodiffuseur multimédia qui offre du contenu sur toutes les plateformes.
4900 Nous sommes notamment reconnus comme un chef de file dans le domaine du numérique, où nous avons aménagé un espace public pour les Canadiens alors que l'univers des communications se mondialise de plus en plus.
4901 Comme vous l'avez appris avec le lancement récent de notre plan stratégique 2015, " Partout et Pour tous ", nous voulons poursuivre notre leadership dans cet espace numérique.
4902 Cependant, nous ne pouvons réaliser ces initiatives que si nous avons accès à toutes les plateformes de communication. Je veux dire par là que nous devons occuper une place de choix sur toutes ces plateformes et disposer d'un accès total et en temps utile aux technologies les plus récentes.
4903 Nous devons aussi être en mesure d'exercer nos activités sur ces plateformes à des conditions commerciales raisonnables.
4904 Voilà notre objectif. Dans ce contexte, j'aimerais maintenant vous expliquer nos préoccupations à l'égard de l'intégration verticale.
4905 Mes observations porteront sur deux points identifiés par le Conseil :
4906 - les enjeux créés par l'intégration verticale; et ensuite
4907 - la nécessité de mettre en place des mesures réglementaires ex ante efficaces pour donner suite aux préoccupations qui résultent de l'intégration verticale.
4908 The four vertically integrated companies -- Bell, Rogers, Shaw and Quebecor -- and you know these numbers, control over 84 percent of cable and satellite distribution, 67 percent of wireless revenues, 65 percent of ISP revenues and 69 percent TV broadcasting revenues in this country.
4909 In real terms, this means more than 25 billion in aggregate revenues. They have a massive influence on our broadcasting system and they have incredible market power.
4910 The Commission cannot assume that these companies will voluntarily compromise their own commercial and corporate interests and those of their shareholders in order to promote the objectives of the Broadcasting Act. Regulation is thus necessary.
4911 You have often recognized this issue in the past. Stated simply, vertically integrated companies have both the incentive and the opportunity to favour their own content and distribution services to the prejudice of unaffiliated companies. This is a reality that the Commission must now address.
4912 I would like to emphasize that we are not suggesting that the Commission do anything radically different from what it has done in the past.
4913 What we are suggesting is that in a vertically integrated environment it would be a mistake for the Commission to believe that it can rely more on ex post solutions and less on ex ante rules.
4914 Vertically integrated entities can reasonably view the cost of fighting ex post battles as "a cost of doing business," as a small price to pay to gain or protect a market advantage.
4915 Furthermore, ex post solutions can never fully repair the damage done to unaffiliated companies. That damage can range from loss of market leadership in innovation, to loss of market share, to loss of financial viability.
4916 The Commission does not have the statutory powers to compensate for these types of losses and vertically integrated companies know it. Ex post solutions are not good enough. Ex ante rules are required.
4917 In our view, these rules must ensure that unaffiliated broadcasters are granted access to distribution channels on a non-discriminatory and commercially reasonable basis.
4918 First, as we said, vertically integrated distributors may give preferential access to affiliated services. The ex ante solution to this issue is to require that for any affiliated service that is carried, a minimum number of unaffiliated services are also carried. We believe that the current 5:1 ratio for non-mandatory services should be maintained. It should not be watered down as proposed by Public Notice 2008-100.
4919 Second, we maintain that vertically integrated distributors have an incentive to give advantageous terms to affiliated services, like early launch, marketing prominence, preferred channel placement, superior packaging, more sophisticated interactivity, et cetera.
4920 In our view, the ex ante solution to that issue is to require distributors to provide comparable terms to unaffiliated and affiliated services and in order to facilitate this we believe that written affiliation agreements between vertically integrated BDUs and programming services, whether integrated or not, should be made obligatory and all agreements should be filed with the Commission.
4921 Furthermore, these agreements should comply with a code of good business practices which would include a requirement for equitable treatment.
4922 Finally, in order to protect the confidential information that may be shared during commercial negotiations, we believe it would be appropriate for the Commission to require vertically integrated BDUs to establish a Distribution Services Groups which would be isolated from the broadcasting side of the vertically integrated company and subject to confidentiality obligations.
4923 The Commission could use the Carrier Services Group approach, which has been used on the telecom side for almost two decades, as a model for this new regulatory safeguard on the broadcasting side.
4924 Donc, à notre avis, l'ajout de ces règles ex ante à la réglementation des EDR et à l'application générale du renversement du fardeau de la preuve atténuerait les préoccupations associées à l'intégration verticale et contribuerait au maintien de la diversité des voix au sein d'un système canadien de radiodiffusion riche et dynamique.
4925 Ces mesures aideraient également CBC/Radio-Canada à s'acquitter de manière adéquate de son mandat en vertu de la Loi sur la radiodiffusion et à concrétiser son plan pour 2015.
4926 Je vous remercie de nous avoir donné l'occasion de formuler ces observations. Évidemment, nous sommes heureux de répondre à vos questions.
4927 THE CHAIRPERSON: Thank you very much.
4928 You suggest we should retain the current 5:1 rule for unaffiliated broadcasters when a BDU carries one of its own.
4929 MR. LACROIX: Mr. Chairman, could I interrupt you -- I'm sorry, one sec.
4930 MR. GUITON: Mr. Chairman, attached to our oral remarks we've attached an Appendix, and following the model of other interveners, I would like to just quickly run through it and give you our position.
4931 THE CHAIRPERSON: Oh, I'm sorry. Please go ahead.
4932 MR. GUITON: Thank you.
4933 THE CHAIRPERSON: I thought you had finished with your presentation. Please go ahead.
4934 MR. GUITON: Thank you very much. It will be very quick.
4935 1. Exclusivity. Given the dangers of vertical integration, we believe a prohibition on exclusives for vertically integrated companies may make sense. However, there is no reason to prevent independent broadcasters from making exclusive deals.
4936 2. Protection of independent broadcasters. We have proposed ex ante rules to protect independents.
4937 3. Adequacy of the current rules. Again, we have proposed ex ante rules.
4938 4. A code. A code could be effective if it were linked to a requirement for written affiliation agreements which would be filed with the Commission, and we will provide the Commission with written suggestions for a code in our final reply.
4939 5. Undue preference. Like pretty much everyone else, we support the reverse onus requirement for all situations.
4940 6. Dispute resolution. We believe dispute resolution could be improved by increasing the speed of the process and by an increased reliance on mandatory orders.
4941 7. Disclosure of financial information. We support public disclosure of aggregated information.
4942 8. Protection of confidential information. As explained by Monsieur Lacroix, we support the implementation of a "CSG" on the broadcasting side.
4943 9. The TELUS AMP proposal. We do not believe the Commission has the jurisdiction.
4944 10. Skinny basic. We do not see a skinny basic as a necessary solution or an obvious solution to vertical integration, but, as the Commission well knows, we accept that it addresses affordability and consumer choice concerns.
4945 11. Benefits test. If the test is reinstated any benefits should be directed to the entire system and not to the affiliated broadcaster of a vertically integrated BDU.
4946 Thank you.
4947 THE CHAIRPERSON: Okay. Thank you.
4948 Now, coming back to the 5:1 rule which has been changed to 3:1 rule, as you heard during the proceedings here this week, most people seem to agree to a variation thereof, saying 3:1 but one of the three has to be an independent unaffiliated broadcaster.
4949 That addition, does that not make the 3:1 rule more acceptable to you?
4950 MS KIRSHENBLATT: No. We still believe that the Commission should maintain the 5:1 rule that is currently in place.
4951 THE CHAIRPERSON: The reason being?
4952 I mean you are presumably interested in seeing unaffiliated services being carried, but there are fewer of those around because of the vertical integration and that's why the idea has been put up of 5:1 or 3:1.
4953 The issue is not number, the issue is whether there are unaffiliated ones among them or not, and by putting a mandatory requirement that of the three, one be unaffiliated, you're actually doing far more for unaffiliated broadcasters than insisting on a 5:1, which may all be vertically integrated companies.
4954 MS KIRSHENBLATT: Actually our proposal is maintaining the 5:1 rule but 50 percent of the five, of the unaffiliated, would be independent.
4955 THE CHAIRPERSON: Fifty percent of five is difficult for me to do, but --
4956 MS KIRSHENBLATT: Well, if you were -- you know, you would round it up if you were just carrying five. If you were adding additional services, it would be up to the distributor to decide.
4957 THE CHAIRPERSON: Mr. Lacroix, if I ask you, of your ex ante solutions, which is the one that is sort of pivotal, the one you can't live without?
4958 MR. LACROIX: I think the distribution services group is important. I think that that is an issue for us. But it is difficult, Mr. Chairman, to take them out.
4959 I think they come as a package because they have to be seen as that. That's why we talked about the four things. We talked about fixed ratios, we talked about the group, we talked about the distribution agreements being filed and we talked about the code that would be a prohibition against a new preference and the reverse onus provisions.
4960 It's difficult for me to take one out because it's like pulling on a thread of a sweater, everything comes.
4961 THE CHAIRPERSON: Okay.
4962 Tom, you have some questions?
4963 COMMISSIONER PENTEFOUNTAS: Yes. We certainly don't want any sweaters coming apart.
4964 Merci beaucoup, Monsieur Lacroix. Merci beaucoup de votre présence aujourd'hui. Je sais que votre temps est précieux.
4965 En lisant votre document, vous venez de perdre un des architectes qui vous a permis d'être un radiodiffuseur multimédia, un des pionniers de cette idée-là, mais ça, c'est un débat pour un autre forum.
4966 Just on a sort of philosophical start to the debate, you know, everybody sort of is painting the VIs as sort of the bogeymen of the industry, and I understand that, but don't you see anything that may curtail their anticompetitive behaviour in their desire to be seen as good corporate citizens and good Canadians?
4967 Wouldn't there be a public relations backlash if they were to start slashing and burning à travers l'industrie, si vous voulez?
4968 MR. LACROIX: I'm sure, sir, that that is a part of any decision that they make every day. However, their number one constituency is their shareholders and if they were put in a position between the Broadcasting Act and returning a better return to their shareholders, if they follow their mandate and understand their job correctly, I think the shareholders will win.
4969 COMMISSIONER PENTEFOUNTAS: Do they have to be mutually exclusive, Monsieur Lacroix?
4970 MR. LACROIX: No, they don't and could be different. However, the danger and the preoccupation and the perception, because we need the public to believe that the system is robust and works, I think that is the issue that comes with the vertical integration and their potential for undue preference.
4971 COMMISSIONER PENTEFOUNTAS: I understand the potential but I still think there is a public relations and a good corporate citizen aspect that most interveners are ignoring. That being said, time will tell.
4972 To get back to ex ante as opposed to ex post rules, and it touched on something my colleague Monsieur Menzies had to say, if things are -- an ex ante or an ex post regime allows greater flexibility in that what is ex --
4973 MR. LACROIX: An ex ante or an ex post?
4974 COMMISSIONER PENTEFOUNTAS: Ex post, sorry. In that when you have an ex ante regime or a heavily concentrated ex ante regime, you know, if it's not expressly forbidden, then it's tacitly or implicitly permitted, and wouldn't you see a value in having greater flexibility that is accorded with an ex post regime?
4975 MR. LACROIX: I don't see that. I'll ask Steven in a second to add to that.
4976 But there's a question of timeliness, there's a question of abuse, there's a question of taking -- timeliness is the key right now.
4977 And as I said in my remarks, the cost of doing business can't be about taking the system, stretching it to a position where there's damage and damage so important that it cannot be solved with an ex post.
4978 COMMISSIONER PENTEFOUNTAS: I understand that. You can't come back and correct irreparable damage once it's been caused.
4979 That being said, if we had a standstill provision or a status quo clause, wouldn't that go a very long way in avoiding that kind of irreparable damage?
4980 MR. GUITON: Certainly we support the standstill clause idea.
4981 But just to get back to your point, the ex ante really doesn't have to limit flexibility, and in fact in our proposal what we're looking at -- we've put our entire proposal on one page.
4982 You need a couple of ex ante rules, the current access rules that you have, our version of them. That's very simple.
4983 You need a requirement for people to conclude and file affiliation agreements. That's simple.
4984 And you need those affiliation agreements to comply with your code.
4985 That's it. That's the ex ante rule.
4986 If the Commission on its own comes out with a decision on a CSG type approach that has to be in place, but in terms of the inflexibilities that you think might come from an ex ante, we just don't see them.
4987 The code itself will be -- by making the code -- by bringing it into the affiliation agreements you're actually creating an ex ante vehicle, because people have to respect the code, but it's done in a way that they will write up the agreements reflecting the code and it's pretty straightforward.
4988 COMMISSIONER PENTEFOUNTAS: Minimizing the number of elements in a code, would you agree that the standstill provision will go a long way in resolving a lot of the disputes that may arise?
4989 MR. GUITON: I am not sure actually. In the event -- I'm trying to differentiate what might be in the code from just the standstill.
4990 For example, one of the things we want to see in a code is the idea that there be equitable treatment between broadcasters, both the unaffiliated broadcaster and the affiliated broadcaster. So the code could talk about, for example, I don't know, access to set-top box information, access to interactivity.
4991 It could talk about those things, which may not be standstill provisions per se. So I'm a little confused on how that would work.
4992 COMMISSIONER PENTEFOUNTAS: No, they're not.
4993 MR. GUITON: But they would be out there in the code and they would be required to be implemented in the affiliation agreements. So it's pretty straight up.
4994 COMMISSIONER PENTEFOUNTAS: But what information belong to the BDU and what information belongs to the broadcaster? I mean you're raising another debate there that we had earlier.
4995 MR. GUITON: I'm sorry, I'm not following you.
4996 COMMISSIONER PENTEFOUNTAS: Well, what set-top box is --
4997 MR. GUITON: Right.
4998 COMMISSIONER PENTEFOUNTAS: -- and other things of that nature.
4999 MR. GUITON: Yes.
5000 COMMISSIONER PENTEFOUNTAS: You're trying to get to --
5001 MR. GUITON: It may be, Commissioner, that the set-top box information is not shared with the affiliated broadcaster. The BDU doesn't share it with its own arm. In that case it wouldn't share it with the unaffiliated. It's a symmetry issue.
5002 But in the event that it is shared, then it has to be shared with everybody.
5003 COMMISSIONER PENTEFOUNTAS: Okay.
5004 In your exclusivity in your Appendix, you mention that independent broadcasters should not be prevented from making exclusive deals. Would you please elaborate on that?
5005 MR. LACROIX: So let's talk about exclusives.
5006 COMMISSIONER PENTEFOUNTAS: Yes.
5007 MR. LACROIX: And we'll tell you -- obviously, you saw in our remarks how we feel about them.
5008 But to get into this conversation for CBC/Radio-Canada we have to bring you back to our funding model, a situation where, everybody knows, we get substantial government appropriation, $1.1 billion, with access to the funds.
5009 Then to be able to deliver the services we do to all Canadians, we have to go out and in the $600 million or $700 million that are missing for us to deliver and do our budget, there's about $350 million or $375 million worth of advertising revenue.
5010 That's the funding model that the CRTC and the government have suggested to CBC/Radio-Canada and that we work with every day.
5011 So when we do -- and the objective on the revenue side is to maximize the value of our content. That is what these two gentlemen do every day.
5012 Last year we did two exclusives. One was the soccer exclusive. The other one was "Tout le monde en parle." Right now these exclusives, the terms have been done, they have been concluded. So we have no exclusives.
5013 But we, when we negotiate, we negotiate with all the distributors. It's not a question of giving one of the distributors an advantage. That's why you have read that we think that we can't be prevented from doing this because we are willing to work with anybody.
5014 The partners that we choose will be market-driven depending on that particular incentive of that moment, and that's where we stand on exclusives.
5015 COMMISSIONER PENTEFOUNTAS: Finally, the impact on --
5016 MR. LACROIX: And maybe -- I'm sorry, sir. And maybe Jack and Robert can tell you a little bit more about the realities in the marketplace of why these exclusives are key to maximizing our content.
5017 MR. TOMIK: I would be happy to.
5018 As Hubert said, Robert and I are in charge of generating revenue. That is what we do and we deal with the vertically integrated companies on all kinds of bases, from cable negotiation rights for payment for things like CBC News Network to advertisers -- they're all huge advertisers -- to carriage agreements, mobile.
5019 And really what it comes down to is we act on behalf of the CBC and we also act on behalf of a number of other constituents, mainly rights holders, independent Canadian producers, and our job is to get maximum revenues for their products.
5020 Certainly in the case of mobile, mobile can be at times -- revenue can be maximized by exclusives. That proved out in the FIFA World Soccer Cup last year.
5021 I think in the case of not being able to have exclusive agreements -- and that doesn't mean we don't go to every carrier and try to negotiate a deal.
5022 But when we can't have exclusive negotiation agreements, I can see CBC losing the right to mobility from the providers, from the independent production community or sports rights holders, because they can see other ways to monetize more effectively without us.
5023 That weakens our position. It weakens our opportunity to negotiate multi levels of agreements with carriers and therefore generate the most revenue for both the CBC and our partners.
5025 M. TREMPE : Merci, Jack.
5026 Alors, comme l'a mentionné Hubert tout à l'heure, nous n'avons eu qu'un seul cas dans la dernière année, qui était " Tout le monde en parle ", diffusé sur la mobilité avec Bell.
5027 Évidemment, c'est pour aller chercher une meilleure valeur sur l'ensemble de tout le contenu qu'on a négocié sur les plateformes, autres plateformes. Ça peut être VOD, mais ça incluait dans le cas présent la mobilité, et qui est un des éléments qui soit exclusif.
5028 Ce qu'on a vécu dernièrement, c'est... Étant donné qu'il y a les producteurs indépendants qui sont impliqués dans cette négociation, parce que lorsque nous faisons l'acquisition de ces droits, que nous allons négocier les droits en leur nom, ils exigent qu'on aille chercher la meilleure valeur possible puisque nous partageons les revenus avec les producteurs indépendants.
5029 Et ce que l'on se fait dire, c'est si tu ne peux pas aller chercher, c'est de valeur, mais moi, je vais y aller négocier directement avec les entreprises de distribution, et, de toute façon, l'exclusivité leur sera accordée, qu'elle vienne de nous, qui avons les droits pour le faire, ou les producteurs indépendants.
5030 M. LACROIX : Donne ton exemple.
5031 M. TREMPE : L'exemple que j'ai vécu, effectivement, lundi dernier, où est-ce que nous sommes en train de négocier avec un producteur très important sur une série d'événements, une série d'émissions qui seront diffusées à l'automne, et il y a un volet mobile qui s'y rattache, et le producteur nous dit : Bien, voilà, on a déjà commencé les négociations avec une entreprise de distribution pour l'exclusivité de la diffusion de ces capsules sur la mobilité. Alors, si vous pouvez aller la négocier, aller chercher la valeur que nous attendons de ce contenu, on vous cède les droits. Sinon, on les conserve et nous irons négocier nous-mêmes.
5032 CONSEILLER PENTEFOUNTAS : Sauf que ça vous met dans une situation précaire parce que Vidéotron peut jouer exactement le même jeu.
5033 Et sur le mobile, est-ce que ça veut dire que vous êtes d'accord à ce que l'exclusivité fasse partie des règles ou des principes de base pour les plateformes mobiles?
5034 M. LACROIX : Mais la grande distinction de Vidéotron, c'est que Vidéotron...
5035 CONSEILLER PENTEFOUNTAS : Il n'y en a pas.
5036 M. LACROIX : Oui, mais la distinction importante qui est dans les notes que vous avez lues, Monsieur le Vice-Chairman, c'est notre position est que les entreprises qui sont intégrées verticalement ne peuvent pas avoir ce genre d'entente. Nous, n'étant pas intégré verticalement, on est prêt à travailler avec n'importe qui.
5037 Et je vais vous donner un autre exemple assez intéressant qui s'est passé récemment où on négociait pour un contenu avec les quatre principaux joueurs, et un joueur, qui tout de suite a dit, écoutez, ça nous intéresse votre contenu, mais il faut qu'il soit exclusif, et les trois autres n'ont pas été du tout intéressés par le contenu.
5038 Si vous nous empêcher de faire une transaction avec le premier, même si les trois autres ne veulent pas avoir accès à ce contenu-là parce que ça ne fait pas partie de leurs priorités, on se retrouverait dans une situation où on laisserait sur la table une transaction importante pour les fins de nos revenus.
5039 C'est pour ça qu'on vous dit, on travaille avec tout le monde dans un marché qui est ouvert.
5040 CONSEILLER PENTEFOUNTAS : Je comprends, mais vous voulez qu'on applique des règles différentes pour vous que pour les IV.
5041 M. LACROIX : Pour toutes les personnes indépendantes, absolument, pas seulement pour CBC/Radio-Canada.
5042 CONSEILLER PENTEFOUNTAS : Alors, CBC/Radio-Can et les autres indépendants peuvent avoir des droits de vendre leurs produits sur une base exclusive sur une plateforme mobile; c'est exact?
5043 M. LACROIX : Oui.
5044 CONSEILLER PENTEFOUNTAS : Et cette règle-là, on va appliquer le contraire pour les autres, les quatre joueurs principaux qui sont intégrés verticalement?
5045 M. LACROIX : Pour les raisons qui sont évidentes et qui viennent avec le concept de l'intégration verticale. C'est ça le concept.
5046 CONSEILLER PENTEFOUNTAS : Qui risque d'être moins évident pour un tribunal, mais ça, c'est un autre débat.
5047 M. LACROIX : Je vous suggère que lorsqu'on parle d'undue preference, lorsqu'on parle d'un avantage inféré ou un avantage qui est livré à la personne...
5048 CONSEILLER PENTEFOUNTAS : Vous, vous voulez les désavantager sur la base du fait qu'ils sont intégrés verticalement.
5049 M. GUITON : Ce n'est pas exactement le cas. Notre position est plus, si je peux dire, self-serving que ça.
5050 Notre position, c'est les indépendants ne doivent pas être affectés. Si vous décidez de mettre une restriction sur les compagnies intégrées verticalement, tout ce qu'on demande -- ça, c'est votre décision, on ne veut pas vous pousser de faire ça -- mais nous, les indépendants, s'il vous plaît, on veut avoir la chance de faire des exclusifs.
5051 On ne propose pas que vous faites sur les compagnies intégrées une prohibition sur l'exclusion. Ce n'est pas notre position. Notre position, c'est s'il vous plaît, par sur nous. C'est une distinction importante dans notre soumission.
5052 CONSEILLER PENTEFOUNTAS : Vous voulez pas sur vous...
5053 M. GUITON : Oui.
5054 CONSEILLER PENTEFOUNTAS : ...mais oui sur les autres, les intégrées verticalement?
5055 M. GUITON : Ça, c'est votre choix. Ce n'est pas nous qui proposons ça. Si vous décidez après ces audiences que vous voulez mettre en place une restriction sur les compagnies intégrées, ça, c'est votre décision. On ne propose pas ça.
5056 Tout ce qu'on dit, c'est s'il vous plaît, nous les indépendants, on ne crée pas un problème dans le marché, mais on veut avoir la flexibilité de faire ces sortes d'entente avec les autres compagnies.
5057 CONSEILLER PENTEFOUNTAS : O.K. Vous ne serez pas en train de déchirer votre chemise si on permettait à tous de signer des contrats d'exclusivité sur la plateforme mobile; c'est exact? Vous ne voulez pas qu'on empêche les compagnies intégrées verticalement de signer des contrats d'exclusivité sur la plateforme mobile?
5058 M. LACROIX : La distinction que Steve vous suggère, c'est -- on parle de nous dans le moment --
5059 CONSEILLER PENTEFOUNTAS : Oui.
5060 M. LACROIX : -- si le CRTC choisissait dans sa sagesse d'imposer ou de restreindre les transactions exclusives pour les EDR...
5061 CONSEILLER PENTEFOUNTAS : Vous ne voulez pas que ça s'applique à vous?
5062 M. LACROIX : C'est exactement ça.
5063 CONSEILLER PENTEFOUNTAS : Oui. On revient à la même chose.
5064 Dernière question. FMC et le rapport entre... Dans le contexte de l'intégration verticale et l'impact de FMC sur vous dans le nouveau contexte...
5065 CMF, Canadian Media Fund, yes. Is that going to have some kind of impact, the fact that the new context and the new reality, will that impact your capacity to access CMF funds?
5066 M. GUITON : J'avais compris en français. C'est juste que je ne le sais pas. Honnêtement, je ne le sais pas et je n'ai pas vraiment pensé à ça.
5067 Est-ce que je peux le mettre...
5068 CONSEILLER PENTEFOUNTAS : Certainement.
5069 M. GUITON : ...dans les répliques, s'il vous plaît?
5070 THE CHAIRPERSON: You had a fascinating discussion with my colleague but can we get to the issue at hand?
5071 MR. LACROIX: Yes.
5072 THE CHAIRPERSON: We have a moratorium right now on integrated companies not to use their television content exclusivity on mobile. That is what is on the table. Some people say continue it and some people say discontinue it, it's not needed, it's anticompetitive, it stifles innovation. You have heard the arguments.
5073 What is CBC's position on this specific issue?
5074 MR. LACROIX: CBC says that whatever your decision on that is, we as an independent in this environment, Monsieur Chairman --
5075 THE CHAIRPERSON: It applies to vertically integrated companies. That is the pre-condition. You have to be vertically integrated and you are taking your broadcasting content and delivering it on an exclusive basis on mobile or Internet. That was --
5076 MR. LACROIX: We have no objection to that, sir.
5077 THE CHAIRPERSON: Okay, thank you.
5079 CONSEILLER MORIN : Oui. Merci, Monsieur le Président.
5080 Pour revenir sur la question d'exclusivité, si une émission est financée par les deniers publics ou par les fonds créés par le CRTC ou par le Fonds des médias du Canada, est-ce que votre position est la même en ce qui concerne l'exclusivité?
5081 Autrement dit, si un producteur indépendant veut négocier l'exclusivité sur une plateforme mobile mais que ce producteur indépendant profite du système comme il est actuellement, avec les fonds privés qui ont été créés, avec le Fonds des médias du Canada, est-ce que votre position est la même?
5082 M. LACROIX : Monsieur Morin, la réponse, c'est oui parce qu'on revient toujours au modèle, et le modèle, c'est d'essayer, pour les fins du financement du radiodiffuseur public, dans ces conversations-là de maximiser la valeur du contenu pour nous et pour la personne qui l'a créé. C'est logique parce que la personne qui nous a financés à coup de 34 dollars par tête devrait être contente de l'importance qu'on attache à maximiser la valeur du contenu.
5083 CONSEILLER MORIN : Mais vous ne trouvez pas que pour le public en général, qui paie des contributions par l'entremise des entreprises de distribution à raison d'environ 5 pour cent par mois, que ce public, qui peut être abonné à une plateforme mobile de différents diffuseurs, pourrait être privé s'il n'y a pas d'entente d'exclusivité avec une seule entreprise téléphonique, pourrait être privé du contenu auquel il a payé sur sa facture mensuelle, soit d'entreprise de distribution terrestre ou satellitaire?
5084 M. TREMPE : Monsieur le Commissaire, évidemment, ces émissions... Si on prend l'exemple de " Tout le monde en parle ", l'émission est disponible " live ", diffusion simultanée à la télé. Elle l'est sur le Web également, sur radiocanada.ca. Alors, il y a possibilité de voir l'émission ailleurs sur d'autres plateformes.
5085 Cette forme d'exclusivité ne touche que la mobilité, un petit groupe de personnes, mais qui donne un avantage... il faut croire qu'il y a un avantage qui en vaut le coût pour le distributeur.
5086 Alors, c'est la façon de monnayer le contenu de la façon la plus rentable possible, d'aller chercher donc une valeur intéressante.
5087 CONSEILLER MORIN : Merci.
5088 CONSEILLER PENTEFOUNTAS : On nie quand même accès à des contribuables, à 90 pour cent des contribuables qui subventionnent SRC/CBC, on s'entend là-dessus, sur cette plateforme-là.
5089 M. LACROIX : Absolument, Monsieur le Vice-Président, mais ce que j'espère, et je sais que vous avez entendu et que vous avez bien compris le message que Robert vous a laissé, c'est que pendant ce temps-là, il y a toute sorte d'autres façons pour ce contribuable-là d'avoir accès au contenu. On ne l'a pas privé du contenu. On lui demande d'aller le voir et de le prendre ailleurs que sur la mobilité, où il y aura une transaction différente.
5090 THE CHAIRPERSON: What you are really saying is exclusivity is fine for the producer of the content, it's not fine for the distributors of content. That's what it really boils down to, that the producer of the content reaps the benefit of exclusivity if he so negotiates, but not the distributor.
5091 MR. LACROIX: Exactly. In an integrated scenario, yes.
5092 THE CHAIRPERSON: Not even integrated. Basically the way you approach it, that is really the bottom line of what you are saying?
5093 MR. LACROIX: Yes. Absolutely.
5094 COMMISSIONER PENTEFOUNTAS : If the producer is part of an integrated company.
5095 THE CHAIRPERSON: Well, that's -- a distributor of any kind. If I understand, what Mr. Lacroix says is there should be no profits of exclusivity reaped by a distributor, by the producer of the content, yes, but not by the distributor. That is really what it boils down to.
5096 COMMISSIONER PENTEFOUNTAS: Unless the producer is part of an integrated company.
5097 MR. LACROIX: The idea is to not penalize the person who is like a CBC/Radio-Canada --
5098 THE CHAIRPERSON: Right.
5099 MR. LACROIX: -- or like an independent person trying to maximize the revenue and he doesn't have access to the platform.
5100 THE CHAIRPERSON: I know. You don't have -- you are not in the distribution business --
5101 MR. LACROIX: That's exactly right.
5102 THE CHAIRPERSON: -- so therefore you cannot benefit from exclusive distribution.
5103 MR. LACROIX: I think that's right. That's exactly right.
5104 THE CHAIRPERSON: I don't want to put words in your mouth. I am just sort of trying to distil it to the essence and it seems to me that is the essence of your position.
5105 MR. LACROIX: Yes.
5106 THE CHAIRPERSON: I very much appreciate your offer of having a hand at redrafting the code.
5107 You may also -- there is the issue that has come up, whether this non-exclusivity has to be blanket or whether one can isolate a form of what it's like, non-replicable programming or et cetera. So you might want to spend some thought on that too.
5108 Thank you very much. Those are our questions.
5109 M. LACROIX : Merci.
5110 THE CHAIRPERSON: Let's break for lunch. It's a quarter to 1:00. We will resume at 2:00. Thank you.
--- Upon recessing at 1248
--- Upon resuming at 1402
5111 THE CHAIRPERSON: Commençons, Madame le Secrétaire.
5112 THE SECRETARY: Thank you, Mr. Chairman.
5113 For the record, Evanov Communications Inc., intervenor No. 37 on the agenda appearing on Monday have advised us that they will not be appearing at the hearing.
5114 Now, Mr. Chairman, we will proceed with the presentation by EastLink, Bragg Communications Inc.
5115 Please introduce yourselves, after which you will have 10 minutes for your presentation.
5116 Thank you.
5117 MS MacDONALD: Thank you.
5118 Good afternoon, Mr. Chairman, Commissioners and Commission staff. I am Natalie MacDonald, VP Regulatory for EastLink and with me here today, to my left, is Deborah Shaffner, President and COO of EastLink and, to my right, Kimberley Hayes, Senior Regulatory Analyst.
5119 Our comments highlight EastLink's primary concerns in relation to negotiating terms and rates for distribution of programming services.
5120 With the four largest BDUs now controlling many of the most popular programming services and dozens of services whose carriage is mandated, we are faced with the situation where companies with whom we compete directly across a number of services have the ability to dictate how we package our services and the rates we pay. In this respect, measures must be implemented to ensure non-integrated distributors like EastLink are able to negotiate on a level playing field.
5121 It is essential that we have flexibility to determine how we package our services and that the rates we pay are reasonable. Our primary competitors should not be the ones to make these decisions for us. Moreover, impairing competitive access to this content violates the core values of the Canadian broadcasting system.
5122 EastLink has little or no negotiating leverage with these networks. Programming services dictate contract terms requiring distribution in high penetration packages, packaging requirements and, in some cases, with the right to terminate the contract if subscriber numbers drop.
5123 Content is a critical driver not only for our distribution service, but for all services we offer. In other areas of our business, when a company relies on its competitors for access to key inputs, rules have been established to ensure access on fair and reasonable terms.
5124 Synergies established across vertically integrated companies are not EastLink's concern. Our concern is when those entities have incentive, combined with opportunity, to grant themselves inappropriate preferences, while excluding, limiting or delaying the access that their competitors have to that content.
5125 For us, dispute resolution is not practical when our direct competitor owns a new, popular service and is already carrying it and using its media assets to advertise its availability. Rules must be in place to limit the opportunity for vertically integrated entities to engage in this behaviour, with timely means to address noncompliance.
5126 EastLink agrees that a code of behaviour would be helpful as long as compliance with that code is mandated and we will take the opportunity to submit a specific proposed code in the reply phase of this proceeding. Today we will describe our key concerns, also addressing some of the issues the Commission has raised in its procedure letter.
5127 Except for Commission-mandated carriage or packaging requirements, EastLink should be entitled full flexibility to decide where and how we distribute the programming services we carry. In this respect, the Commission must establish a rule that prohibits the programming service from forcing carriage terms that are not required by the Commission, or otherwise required by law.
5128 Rules should be in place to prohibit the services from demanding:
5129 minimum penetration requirements;
5130 tied selling of services;
5131 a minimum number of services in a package;
5132 carriage of the same service in multiple formats; or
5133 denying us the right to stand alone carriage.
5134 Rules should also be put in place prohibiting vertically integrated companies from denying non-integrated distributors access to content on multiple platforms.
5135 Vertically integrated distributors must be required to ensure that non-integrated distributors have timely access to new services, since delays in service launch will have immediate and long term effects on our business.
5136 We propose a rule that vertically integrated programming services be required to provide timely notice of the launch of a new service and that carriage negotiations should commence immediately.
5137 The rules should also prohibit exclusive content deals. Content available on linear distribution must be available to distributors on other platforms. We support a blanket prohibition on exclusive content deals for content originated on other platforms.
5138 Pricing is the most difficult issue to address in this proceeding. A vertically integrated company or its affiliate should not be granted more favourable terms, conditions and pricing than those offered to non-integrated entities. Given the potential for vertically integrated services to inflate rates they offer to their affiliated distribution arm, or even to other vertically integrated distributors, the Commission must establish rules prohibiting those entities from relying on MFNs to disadvantage an independent distributor.
5139 Similarly, rates charged by the programming service to its distribution arm are not relevant when determining whether the rates charged to independent distributors are reasonable.
5140 EastLink agrees with those parties who have proposed that principles be established regarding rates that would create a prima facie presumption that the vertically integrated distributor has granted itself an undue preference. This includes the principle that the wholesale rate paid by the independent distributor should not be higher than fair market value, and/or higher than the rate the integrated distributor charges its retail customers.
5141 EastLink also supports the requirement that vertically integrated programming services provide public financial disclosure of the average per subscriber rate they receive for each service, separated between vertically integrated distributors and non-integrated distributors.
5142 We submit that no programming service should be allowed to refuse stand-alone carriage where such carriage is permitted by Commission rules.
5143 Even where services are currently required to be in a package, during negotiations or dispute resolution, the Commission should require the vertically integrated service to immediately make stand-alone content available at reasonable rates if negotiated packages cannot be finalized before the planned launch date. This requirement ensures that the distributor and its customers are not prejudiced by delays during negotiation or dispute resolution.
5144 We also propose that vertically integrated services should be prohibited from denying access to or withdrawing a service during a dispute or negotiation period.
5145 With regard to the other issues raised in this proceeding, EastLink's position is as follows:
5146 We support expanding the reverse onus provisions so that they also apply to integrated programming services.
5147 We support the Commission seeking more expansive information from programming services when a dispute arises regarding carriage terms and rates.
5148 We agree with those parties who would suggest that the outcomes of disputes should be made public, which would have precedential value during future negotiations.
5149 EastLink supports implementing measures to prevent vertically integrated BDUs from having any access to information regarding their competitors' businesses that is provided to their affiliated programming services as a result of carriage negotiations with those services.
5150 We oppose reinstating the Tangible Benefits Test for BDUs. It would impede BDUs' ability to continue to expand their businesses as they have over the past number of years and there is no justification for overturning the Commission's decision to eliminate that test.
5151 EastLink believes that public access to EastLink's financial information is not necessary or appropriate, particularly in light of the fact that we are a private company and are not vertically integrated.
5152 Given the extent of vertical integration in the industry and the fact that our direct competitors will have access to even more details regarding how carriage rates could impact us, we do not believe it is appropriate or necessary to put our information on the public record.
5153 Before we conclude, we want to ensure we have made our position clear on the five key issues identified in the Commission's letter. Forgive me that this isn't in the written submission, but I want to touch on those five issues.
5154 First, with regard to problems and benefits of vertical integration. While benefits do accrue to these entities, we have concerns about the problem that arises when our competitors own key content that we need and that due to our lack of negotiating power they can dictate how we carry and package the service, as well as the rates we pay.
5155 Second, on exclusivity. Content is a key factor in consumer choice of service provider. Allowing our competitors to decide whether they want to grant us access to content they own allows them to dictate how effectively we can compete against them.
5156 Third, rules are required to assist independent distributors during negotiations. We talk about the issue of levelling the playing field, however we have no content and our subscriber numbers are relatively insignificant to them. As such, rules would not be able to completely level the playing field, but they will at least limit the ability of vertically integrated firms to exert undue pressure and force onerous carriage terms.
5157 Number four. Current regulatory measures are inadequate because they were not designed for a broadcasting industry that is as vertically integrated as it is now and the new multi-media platform reality of the industry.
5158 Fifth, as discussed, we support a code which is helpful to set expectations for the industry. However, rules are still needed where certain conduct should be prohibited or mandated.
5159 Preventing behaviour in the first instance avoids prolonged dispute resolution and competitive harm.
5160 That concludes our presentation and we would be prepared to take any questions from the Commission.
5161 THE CHAIRPERSON: Thank you very much.
5162 It's quite a shopping list you put before us so let's go through them one-by-one.
5163 Exclusive content agreements. Are you already in the wireless business or are you just about to set up?
5164 MS MacDONALD: No. We are in the process and we have been for some time in trying to build on that.
5165 THE CHAIRPERSON: You suggest the current moratorium is on the integrated players using the linear content exclusively on their mobiles. If they put it on their mobiles they have to offer it to others, too.
5166 MS MacDONALD: Right.
5167 THE CHAIRPERSON: You are in favour of that rule I gather.
5168 MS MacDONALD: Yes, we are.
5169 THE CHAIRPERSON: It would mean that when EastLink wireless, or whatever it's called, is up, you would be able to have it. And your rationale for it is what?
5170 MS SHAFFNER: From our point of view, if we are in the mobile business what we see is that as an opportunity. If we create content that is popular for mobile users and we have the opportunity to sell that to millions of mobile subscribers across the country, we view it as a business opportunity versus a barrier.
5171 THE CHAIRPERSON: Would this rule apply to only vertically integrated companies or it should apply across the board?
5172 MS SHAFFNER: The non-exclusivity?
5173 THE CHAIRPERSON: Yes.
5174 MS SHAFFNER: We believe it should apply across the board, yes.
5175 THE CHAIRPERSON: Okay.
5176 Now, the second one says, prohibit integrated BDUs from launching a service before independent BDUs. This is the whole head start issue.
5177 MS MacDONALD: Okay.
5178 THE CHAIRPERSON: Help me out here, I don't really quite understand what you have in mind.
5179 Let's say Bell has acquired through CTV its channel -- CTV launches a new channel, let's say a Cat "B", and it's going to be distributed obviously on Bell. Now, you want Bell to notify the world at that point in time that in six months, or six weeks, or whatever it is, we will launch this channel so that you then have the chance to come and say if we like that channel we want to carry it on EastLink as well. That's how I understand this issue.
5180 MS MacDONALD: Yes, that's what we are saying. Yes, that's what we are saying.
5181 THE CHAIRPERSON: Okay. Now, Bell is in negotiation with you, you can't agree on a price, therefore, if I understand it correctly, you say, "Well, Bell, you have to carry us anyway as of the same day that you carry your own CTV channel."
5182 Is that right?
5183 MS SHAFFNER: I think that's exactly what we are saying. Otherwise, if Bell, in our markets, launches that service and it's a popular service, then they have put us in a very poor competitive position and we will face loss of customers.
5184 In fact, we had that very situation happen to us this past hockey season when one of the vertically integrated companies came to us in advance to say that they had a particular piece of content, asking a very exorbitant rate for that content. We declined, even though it was content we knew our customers wanted, very, very popular, but we couldn't justify the price and our vertically integrated competitor launched that service on a free preview to its customers and we lost customers as a result.
5185 THE CHAIRPERSON: But surely Bell is going to say, "Just hang on a second, we created that channel in our broadcasting division and I have promoted it and I have given previews and everything and now EastLink wants to reap the benefit of my promotion.
5186 MS SHAFFNER: But what they are doing is they are competing in our market, distributing video the same way we are, and so they are using their content assets and the vertical integration of their company to put us in an unfavourable competitive position. That's what we believe is unfair to a small independent BDU like us.
5187 MS MacDONALD: And if I may add, the content we are talking about is content that we believe all Canadians should have the right to access. So as a distributor to our customers we think it's very important that we be able to have access to that content as soon as it is available, particularly when it is premium content that there is a time limitation. We need to get access to that if it has to do with live sports programming, et cetera, and any time delay in access to that content will impact us in a competitive way and that way we will lose subscribers.
5188 THE CHAIRPERSON: Your rationale is, I assume, as long CTV was not owned by Bell it was their interest to be carried by as many as possible so therefore there was no question of withholding it to get an unfair advantage. Now there is a built-in incentive to withhold it.
5189 MS SHAFFNER: Exactly, yes.
5190 MS MacDONALD: And I might add as well, we are here talking about vertical integration and we definitely have concerns about the fact that four companies with whom we compete across multiple services now own so much content.
5191 But to be clear, we have faced challenges negotiating simply because of our size as well, so the expectation is that an independent programming service would have an interest in broader access and wouldn't have those same incentives.
5192 THE CHAIRPERSON: Yes, but it's not our job to help you because you are small; our job is to make sure that Canadians enjoy a good broadcasting system and by being small you also have certain advantages that the big boys don't have.
5193 MS SHAFFNER: I think one of the things that we would like the Commission to understand is the difficulty that we do have as a small player in negotiating contracts today and as we see the vertical integration come at us, the ability to negotiate gets much more difficult.
5194 So today when we are negotiating contracts often what will happen is we will be told that the big players won't negotiate with us until they have established the terms and conditions with the four big players in the industry. So what happens for us is we will get contract terms that are delivered, they say "This is our rate card as established with the four big BDUs" and it's a take it or leave it approach that's been used with us often in the past.
5195 What we are seeing now with the CTV assets, further to some of Cogeco's comments this morning, is that same treatment is happening, except it is worsened in that when we -- our contracts with CTV expired, as Cogeco's did, when we contacted CTV about an offer we were told that they were going to create the offers and work with the big players before working with any of the small players. That included us.
5196 We did recently get an offer, the first offer from CTV. That arrived at the same time as our Notice of Termination.
5197 And so what we are starting to see is a very heavy hand from our vertically integrated companies in how they intend to negotiate with us. It again comes back to their ability to put us in a negative competitive position to them.
5198 THE CHAIRPERSON: I guess what I fail to see is the anti-competitive part. Isn't it natural that you deal with your biggest customers first before you deal with your small ones and in fact that you establish a market rate and the value with your big customers and then you deal with the small ones?
5199 MS SHAFFNER: To some extent I think that that is a fair comment, but where we very aggressively compete with the affiliates of the vertically integrated companies, they are centrally dictating to us the packaging and the terms that we can sell to our customers and that's where the disadvantage lies for us.
5200 THE CHAIRPERSON: Just to play it out, in this case where I said Bell wants to launch a new CTV channel, they notify you and you negotiate, you don't get -- I presume as a corollary then you say, "Bell, you must carry that channel at the same time that you carry it on your own network and any dispute as to pricing, packaging, promotion, whatever it is, if we can't work it out it goes to arbitration before the CRTC."
5201 Is that the idea? With a rate adjustment to whatever has to be done.
5202 MS SHAFFNER: We think that with a combination of the rules that we are proposing, combined with the ability to launch a new channel on a standalone basis will allow us to get to a level playing field to negotiate those channels that today we don't have or we wouldn't --
5203 THE CHAIRPERSON: I understand that.
5204 MS SHAFFNER: Yes.
5205 THE CHAIRPERSON: I'm just playing -- as a lawyer I always focus on the worst situation.
5206 MS SHAFFNER: Yes.
5207 THE CHAIRPERSON: So assuming you do not reach negotiation, that would be the outcome?
5208 MS SHAFFNER: Yes. Yes.
5209 THE CHAIRPERSON: Now, your third point is increase BDUs flexibility on carriage requirements.
5210 This is really now getting into the contract negotiation between you and the content provider, be it CTV or Global, et cetera.
5211 What exactly do you want us to do here?
5212 MS MacDONALD: If I may take that.
5213 First of all, when you look at the list that we presented it may look like a long list of requests, but when you cut through all of those details what we are really saying is, we are not asking for onerous rules to be imposed on these vertically integrated distributors, what we are asking for is a recognition that if the Commission says, "Here's a service, you are allowed to carry this service on a standalone basis", that when we go to a programming service we can say, "We want to carry your service on a standalone basis or in a package", and when they come to us and demand extremely onerous terms in a package that's a high penetration, and when we do the number crunching and it doesn't make sense for our business, we have the ability then to say, "Okay, no, no, we are not going to do that, we will take it on standalone until we can work out a deal."
5214 THE CHAIRPERSON: Well, packaging we basically don't -- we say what you have to carry as part of basic, you can add to it, et cetera, and then we have some rules of stuff that may not be carried together, but otherwise we are out of the packaging business.
5215 So, basically, it is up to the programmer and you to work out how the packages are. So I don't quite understand when you say "other than what is mandated by us." What is mandated by us is next to nothing.
5216 MS MacDONALD: Right. To be clear on our position, we understand that when there are two parties in a balanced situation, they are able to negotiate through different packaging arrangements.
5217 But, in our situation, we simply don't have that power and we are, effectively, asking our competitors to be reasonable with us and to allow us to package as our company sees fit, and we are prohibited from doing that.
5218 THE CHAIRPERSON: I understand that, but I am trying to understand what you want from us.
5219 CTV says, "Yes, you can have this channel, but we want you to package it in the theme package, where there are three others, which also are ours," or whatever. You don't think that makes good marketing sense. Then what?
5220 MS SHAFFNER: What would happen is, the Commission would -- we would ask for a rule to be established that said: When we license a programming service and we don't dictate specific packaging requirements, that programming service needs to be open to sell its service to a distributor, on whatever terms in packaging the distributor requires.
5221 That may mean that the programming service would say: Well, if you are not putting it in this package, we have to discuss a different rate.
5222 But let us have that discussion. We don't have that opportunity today.
5223 So we are not asking the Commission -- a lot of the list, tied selling, et cetera, those are examples of the kinds of things that happen when we try to negotiate. We are just saying: Let us have a conversation that says, "Okay, we don't want to buy it on the basis that you are demanding we pay for it and package it, but --"
5224 THE CHAIRPERSON: I am still not clear on what you want.
5225 I could see if you insisted -- although I am not too sure that we would be prepared to give it -- that vertically integrated program providers may not insist on packages.
5226 But you, yourself, have packages, et cetera.
5227 And this is something -- there are normal negotiations between a programmer and a distributor. Why should we go there?
5228 We have sort of preventative rules, saying that if you are a porno channel you can't mix it with a religious channel, or something like that, but those are negative rules. But we don't say how to package --
5229 MS MacDONALD: Right.
5230 THE CHAIRPERSON: We want the market -- you and the programmer to decide how to do that.
5231 MS MacDONALD: There are two points to that. One, the reference to normal negotiations -- these are not normal negotiations, because we simply don't have the ability to change anything.
5232 The second part is the statement that "We choose to package as we wish." We actually don't have the flexibility that it would appear, because we are actually prohibited from creating packages.
5233 We have been wanting to create packages to market in ways in our market that would make us competitive and attractive to customers, and we are prohibited, on many services, from doing that because of the contract terms we have had to take.
5234 THE CHAIRPERSON: Essentially, you are saying that, in negotiations with vertically integrated BDUs, you may insist on packaging, but they may not.
5235 MS MacDONALD: No, we are actually --
5236 THE CHAIRPERSON: That's what it boils down to. They may not insist on packaging, but you, for your own purposes, may insist on packaging, and obviously that will include the rate you charge.
5237 MS MacDONALD: What we are proposing would allow a vertically integrated programming service to sell its service to us at, maybe, a higher rate on a standalone basis. It would allow it to then come back and say: We are not happy with this. We want broader distribution.
5238 Then, we would likely want a package as well. But it puts us in the position where we can now say: Okay, let's talk about what works for both of us.
5239 Today we don't have that.
5240 THE CHAIRPERSON: What would the rule say?
5241 MS MacDONALD: The rule would say that --
5242 THE CHAIRPERSON: A vertically integrated program provider may or may not -- what?
5243 MS MacDONALD: It shall provide access to a BDU --
5244 I mean, I obviously would want the opportunity to tweak the rule, but --
5245 THE CHAIRPERSON: I know, but I am just trying to get --
5246 MS MacDONALD: It shall provide access to a distributor when it is a licensed programming service that the Commission has recognized as distributors having an entitlement to, and it shall make its access available.
5247 Yes, it is up to the parties to negotiate how that happens, but it can't refuse to sell the service to us simply because it dictates a package and rate that doesn't fit with our business model.
5248 The fact is that it is our direct competitors who are, in effect, dictating our packages when that happens.
5249 THE CHAIRPERSON: Okay. One more time. You are basically saying that a programmer who is part of a vertically integrated enterprise may not insist on selling its programming only in the form of packages, it must also provide it on a standalone basis.
5250 MS MacDONALD: Exactly.
5251 THE CHAIRPERSON: The rest is up to you. That's really what you are after.
5252 MS MacDONALD: Yes. It would allow us to negotiate options then.
5253 MS SHAFFNER: Just to add to that, what happens today is, we would get contract terms that talk about carrying at 70 percent of our subscribers, or 90 percent of our subscribers, with no ability to negotiate from that point, and by having a rule that says there is the flexibility to offer that on a standalone basis, at different rates -- and negotiating the rate is often not the biggest issue in these contracts. It's about getting to the packaging that we want for our customers.
5254 And, today, what happens is, we get very much take-it-or-leave-it approaches on the packaging. By getting this type of flexibility, we believe that, as Cogeco said this morning, it will create the rules of the soccer field that will, at least, allow for a fair game and a fair negotiation, and today we don't have that.
5255 THE CHAIRPERSON: What about tied selling? This one really strikes me as being somewhat unusual because the whole broadcasting field is replete with tied selling. Everybody does it. Why are you feeling that we should --
5256 First of all, how do you define tied selling, and why would you prohibit it?
5257 MS SHAFFNER: Tied selling would be: If you buy this service from us, you also have to buy this one, and package it together with another service.
5258 It's a similar type of issue for us. We look at our customers and our customer demands. To offer a particular channel, we don't also want to have that tied to another channel that our customers may not want.
5259 THE CHAIRPERSON: But isn't that happening right now?
5260 Forget about vertical integration. Before it happened, when you were dealing with Alliance Atlantis and you wanted Home and Garden, you wouldn't get it alone. They insisted that you pick another one, The Health Channel or whatever, which wasn't doing so well.
5261 That was one of the ways that they created penetration, or at least exposure of their channels.
5262 You have lived with that for years now.
5263 MS SHAFFNER: We have, but in a non-vertically integrated world.
5264 In a vertically integrated world, we believe that this puts them, again, in a position where they can force us to sell our products together, force us to package our products in ways that our customers may not want.
5265 And our customers see us as the people who are creating these rules, so it puts us in a negative competitive position.
5266 THE CHAIRPERSON: That I understand, but, I mean, it is such an integral part of the broadcasting scene, and to suddenly put a blanket rule like this would be somewhat surprising.
5267 Then, the other one is "Reopen carriage contracts for a material change in content."
5268 Again, this you really have to explain to me.
5269 Normally you make your bed and you lie in it. If you cut a bad deal, you cut a bad deal. If you have a good deal, you don't want to reopen it either.
5270 MS SHAFFNER: Yes, and when we did our written submission, what we were trying to highlight for the Commission are some of the problems of a small operator, in terms of negotiating contracts.
5271 Obviously, we wouldn't expect the CRTC to be getting involved in our contracts, but, again, it is an indication of some of the challenges we have with a contract, where we have negotiated a particular service on the basis of the content that is in that service, only to have that content change, and yet still have to pay the same price for the service.
5272 That is something that we see as a possibility.
5273 THE CHAIRPERSON: But, surely, when you made the contract originally, it was up to you to determine what kind of variation clause, what kind of cancellation clause, et cetera, you put in there. That was part of the negotiation.
5274 Having done it, now, why should we say: Okay, you are negotiating with a vertically integrated company, you think that you should now have an out clause, or at least a clause to reopen, which you didn't negotiate yourself.
5275 I don't quite get it.
5276 MS MacDONALD: First of all, we wouldn't have had the ability to negotiate that into the contract, based on the experience.
5277 But, just to clarify, as Deborah mentioned, our written submission is quite lengthy and we go into --
5278 THE CHAIRPERSON: I am looking at your written submission. I read it last night, so I know exactly what you said.
5279 MS MacDONALD: There are a couple of points in that submission that highlight, in a perfect world, what we would like to have. But when we sit back and we say, "Okay, what makes sense when we come before the Commission today, as we work through this into reply," what makes sense for us is the ability to package and carry the services and have the flexibility that those terms aren't dictated to us.
5280 That also goes to the issue of contracts -- although that is a problem that we have today, in that we can't negotiate terms that give us those opportunities. If we are in a situation where we have the right to carry a service on a standalone basis and the service provider wants to package it, and we say, "No, we are not going to go with that, we will take the standalone," it incents them to come back to the table and try to work through a deal, or we have to go to dispute resolution.
5281 What it also does is, it gives us a bit more flexibility then to say: You know what, we want these other terms in the contract, as well.
5282 We are really trying to figure out a way that puts us in the position where we can get access to content that has been licensed for distribution, and that gives us an opportunity to negotiate on somewhat fair and reasonable terms with the other party.
5283 THE CHAIRPERSON: I don't want to go through all of this, we don't have all afternoon, but a lot of this strikes me that you are just trying to enhance your negotiating power, which, admittedly, as a small player, is not big.
5284 I don't see, for instance, "Prohibit rates based on volume discounts." Isn't that a perfectly normal provision of contracts?
5285 MS SHAFFNER: Well, programming is about eyeballs, and the number of eyeballs that you get to look at programming, and as a small player, if we had a cable system with 5,000 subscribers in it, and we gave the content provider 100 percent of those eyeballs, and a national BDU with 1 million subscribers did 10 percent of their eyeballs, with a volume discount they would get a lower rate and be competing with us in that community on the basis of a lower rate, and they have given far less of their eyeballs than we have of our eyeballs.
5286 Our rationale is based on eyeballs, and if we give 100 percent of our eyeballs, or more of our eyeballs than the larger BDU, then we should get a favourable rate for that.
5287 MS MacDONALD: If I may add to that example, in a small market, when we have had to give a service close to 100 percent penetration, that means we have had to push it into a package, a larger package, where we have to force a number of our services because of these deals.
5288 Our customers see us, then, as forcing services on them that they don't want, while our competitor, with an extremely larger number of subscribers, has to only provide it to, say, 10 percent of their customers in that market, which means they have packaging flexibility.
5289 So already we are competing. Where we have added a service, everyone is paying for it, and our competitor has a package that is themed and competes with us.
5290 THE CHAIRPERSON: And you don't face that today, that problem?
5291 MS MacDONALD: We are facing those scenarios, where we can't package our services, and other competitors appear to have theme packs and other offers that suggest they have that flexibility.
5292 THE CHAIRPERSON: Basically, it seems to me that these are all problems that you are facing today, and that you have been facing for the last 10 years, or however long you have been in the distribution business.
5293 Your basic point is that, because of vertical integration, they now become unacceptable or unbearable.
5294 MS MacDONALD: With vertical integration now, we are going to our direct competitors and asking them to give us a service, and we are being told how to package it, while they can enter the market and do something far more interesting for the customer. We don't have that flexibility.
5295 And we think that creates an anti-competitive situation, where there is definitely an incentive for our competitor to have a more attractive package, and we don't have the ability to do anything about it.
5296 And we are not actually asking for protections in a way that would hurt our competitor. We are saying that the programming service, the vertically integrated service, can sell us the service, they can sell it on a standalone basis and assess what an appropriate negotiated rate would be, they can choose to negotiate with us and offer us a good deal that makes sense, and we are willing to pay fair market value for it.
5297 We are not asking for a deal, we are asking to be able to negotiate something reasonable, with control over our packages.
5298 THE CHAIRPERSON: I understand when you say that vertical integration creates a new paradigm. Therefore, for instance, MFN clauses within a vertical group should not be imposed on us, because they have all of the incentives to load them in such a way that -- or when you are worried about information flowing horizontally, from the programming arm to the distribution arm, et cetera, and it can be used against you.
5299 But the types that you have just discussed with me, volume discounts for instance, and so on, or rates, it strikes me that those are normal contracting problems that you have, which are now becoming more acute because of vertical integration. But I don't see anything inherently unfair or so anti-competitive that it requires us to step in.
5300 Obviously it's a question of degree, but --
5301 Let's put it the other way around. What happens if we don't buy this, if we don't establish these rules?
5302 MS MacDONALD: What we expect is that we will continue to be unable to negotiate reasonable rates. We will continue to run into situations where our competitor may have launched a valuable service or an interesting service, and we don't have the ability to negotiate reasonable terms of carriage, or we are required or forced to pass it through at higher rates, while our competitor is able to benefit from unique packaging for only the select customers who are interested.
5303 So, over time, our direct competitor is seen as the go-to company for this content, because it's timely, it's premium, and there is flexibility in how it can be offered.
5304 So there is an incentive.
5305 Our direct competitors on the telephone side, the incumbent phone companies, are aggressively building out their distribution business, and this is a perfect time for them to have key assets, which are key inputs, content, to build a business to compete.
5306 So we have serious concerns about that.
5307 THE CHAIRPERSON: Essentially, margin squeeze is what you are worried about, the way I see it.
5308 MS MacDONALD: That would be an effect, and also the lack of ability to negotiate. If we had the ability to negotiate the flexibility in packages, we could compete a little bit better.
5309 THE CHAIRPERSON: Now, your code -- presumably the code would set out the principles to be applied on pricing, and that would then be a guide, in case there was a dispute as to whether the pricing -- a dispute has arisen between you and a programmer, which would help us to, presumably, bring the arbitration to a close.
5310 Is that the idea of the code?
5311 MS MacDONALD: That would be the idea.
5312 I guess I would make a distinction between -- an example of a rule would be, if the service is licensed, you should be required to sell it to a distributor.
5313 An example of something in the code would be, on a rate issue perhaps, an example of a type of behaviour that, if breached, would be a prima facie presumption of undue preference.
5314 THE CHAIRPERSON: You want reverse onus, so presumably the code would say that pricing should be on market principles, the value of the -- the rate of distribution, the rate of penetration, or whatever. Then, whatever they had offered, they would have to justify whether it meets those tests or not.
5315 MS MacDONALD: That's right.
5316 What that does for us is, at the outset, when we are trying to negotiate, if we are granted the right to -- whether it's a standstill -- we have the protection of not having to lose the service while we negotiate, or if we are able to carry a service in the interim, we don't have that fear of not knowing what kind of criteria, basic criteria on pricing principles the Commission will apply.
5317 So it creates a bigger risk without having some sense of what the Commission accepts as an appropriate guideline. That's how we see the code.
5318 THE CHAIRPERSON: Okay. Now, you are against the benefits/cost test.
5319 You didn't say anything about skinny basic. What is your position on skinny basic?
5320 MS SHAFFNER: We have talked about our position on skinny basic before. We don't believe that it should be mandated.
5321 As a system -- 85 percent of our systems are less than 1,000 subscribers. Many of them are still analog. So, for us, any kind of skinny basic would be very costly from the point of view of truck rolls and traps, as you have heard some of the other players talk about.
5322 As well, we have had an opportunity in some of our systems to offer a very small basic product, and people just are not interested in buying it. In fact, what we hear from our customers is that they want more, not less.
5323 From a digital point of view -- and I think it was raised earlier -- with digital it's cheaper. Could you offer a skinny basic in the digital environment?
5324 Again, I think there is some merit to that argument, but at the end of the day --
5325 THE CHAIRPERSON: Tell me what the demerit is in the digital environment.
5326 MS SHAFFNER: I think a couple of things. One is, our customers are not asking for it. They don't want it.
5327 Our customers ask us for more, not less. They don't take any kind of little, basic product in the systems where we have it.
5328 The other item is, does it really impact the cost for the consumer. Really, the cost about a basic product is about the infrastructure to get the services there, not about reducing the content in the basic service.
5329 So we don't see it as something that needs to be mandated.
5330 Would we offer it in the future? We are always researching our customers, always looking at what they want, and ways to give them more choice, and if at some point they demand that, then we would look at doing it. But today we don't see it as something that you need to mandate.
5331 THE CHAIRPERSON: Now, this may sound unfair to you, but it sounds to me as though you want all sorts of protection for you as a small distributor, and we have gone through the whole list, but until now we haven't mentioned the consumer.
5332 Now, when there is one thing that is clearly consumer friendly, like a skinny basic, you say no.
5333 Aren't we doing all of this for the benefit of the consumer in the end?
5334 That's certainly the way we look at it from a regulator's point of view.
5335 MS SHAFFNER: Absolutely. From a consumer point of view, a lot of the things we have talked about today, a lot of the rules, it's all about us being able to offer the packaging and products and choice that our customers demand from us. They want what they want, where they want it, and they demand choice in how they get their products.
5336 But our research would say that they do not want a small basic product. They want lots of content, and more of it.
5337 So, again, I think if we did research that supported that kind of product, then we would absolutely look at a skinny-type basic product, but today we would say that our customers are not -- it's not something that they have asked us for.
5338 THE CHAIRPERSON: And on dispute resolution, the one thing you really want is a standstill requirement, I gather. Is that what you are after?
5339 Or, what is it on dispute settlement that you feel needs to be done to make the process work better?
5340 MS SHAFFNER: From a dispute point of view, from our point of view, a couple of things -- and using the term "standstill", I am not quite sure what that means, but --
5341 THE CHAIRPERSON: Basically, if there is a dispute between you and the program service, either about renewal or existing terms, et cetera, the carriage cannot be discontinued while the dispute is being arbitrated.
5342 MS SHAFFNER: Exactly. That would be a minimum.
5343 We would also want the ability to carry a new service while we were working through the dispute.
5344 THE CHAIRPERSON: We just went through that.
5345 MS SHAFFNER: Yes.
5346 THE CHAIRPERSON: Okay. Thank you very much. Your position is very clear. I would encourage you to spend a lot of time on that code, as you have offered. It would help us very much.
5347 Do any of my colleagues have questions?
5348 Thank you very much.
5349 We will take a five-minute break before we go to the next intervenors.
--- Upon recessing at 1447
--- Upon resuming at 1500
5350 THE CHAIRPERSON: Okay. Commençons.
5351 THE SECRETARY: Thank you, Mr. Chairman.
5352 We will now proceed with the presentations by the Canadian Cable Systems Alliance Inc. and Cable Cable Inc. who are appearing as a panel to present their interventions. We will hear each presentation which will then be followed by questions from the Commissioners to the panel. Each intervenor will have 10 minutes for their presentation.
5353 I would now invite the Canadian Cable Systems Alliance Inc. to begin. Please introduce yourselves and then you will have 10 minutes.
5354 Thank you.
5355 MR. DEANE: Thank you. Good afternoon, Commissioners.
5356 I am Jim Deane. I am CCSA's Chair and I am CEO of Access Communications Cooperative. With me today are Alyson Townsend, CCSA's President and Mike Fiorini, Vice-President of CCSA member, Cable Cable.
5357 Supporting us are Chris Edwards of CCSA; Harris Boyd, President of Solaracom; George Hariton, who is here to speak to competition law matters; and Andrew Briggs, who is here to speak to our economic analysis.
5358 We are here representing today 110 independent BDUs right across Canada. I will turn our presentation over to Alyson to discuss the concerns of our members and to outline our recommended remedies.
5359 Thank you.
5360 MS TOWNSEND: Good afternoon.
5361 I have an important message for you today. Vertical integration has reached the tipping point.
5362 There is a serious imbalance of power in the industry; and there must be a framework to respond to that imbalance.
5363 The BDUs that we represent are excellent competitors. They responded when DTH was licenced 15 years ago and they have competed vigorously ever since.
5364 These independent small businesses continue to develop cost-effective delivery of new services including wireless and "TV Everywhere" and they intend to offer full, competitive service bundles.
5365 This proceeding is about maintaining a balanced and effective broadcasting system now that four dominant players hold virtually all the power.
5366 The industry structure which has emerged after the recent acquisitions by Bell and Shaw are a paradigm case of vertical integration, with clear incentives for market foreclosure and other forms of anticompetitive behaviour.
5367 CCSA's members rely on those vertically integrated enterprises for virtually every important input into their businesses. At the same time they compete with the DTH arm of those companies.
5368 If these anticompetitive incentives are allowed free rein, many rural Canadians will lose the benefits of choice in the delivery of broadcasting, broadcast internet or broadband internet and telephone services. We can assure you that we are already seeing the assertion of that power in current negotiations.
5369 The proposed framework must have timely responses to abuses and provide incentives for good conduct.
5370 First, a keystone of such a regime is a "standstill" provision.
5371 A standstill provision can be used to prevent irreparable harm to non-integrated companies such as we represent and give the Commission time to arrive at a meaningful, enforceable remedy.
5372 The standstill provision in our view should include two elements. It needs to apply to all services whether Category A, B or C, and it needs to apply to all services owned by the particular vertically integrated company.
5373 Without a prohibition of that nature a dispute with one of the vertically integrated enterprises is effectively over before it ever reaches the Commission. Once any programming services are withdrawn a non-integrated company has no choice but to capitulate.
5374 Second, a reverse onus provision should apply to the vertically integrated enterprises. Reverse onus should require them during a dispute resolution to demonstrate the absence of undue preference or undue disadvantage.
5375 Third, the existing undue preference and undue disadvantage provisions are sufficient for their purpose, as long as they continue to apply to all types of undertakings and content and so long as they are broadly interpreted as necessary to ensure effective competition.
5376 Fourth, as necessary, the Commission should use its powers of inquiry to reach beyond an affiliation agreement to understand the larger commercial bargains that are involved.
5377 Fifth, we recommend the adoption of the provisions that the FCC implemented in the Comcast decision. They include:
5378 - Insulation of small BDUs from arbitration costs and;
5379 - Very importantly, the requirement for a vertically integrated enterprise to offer terms for programming services both on a standalone and on a bundled basis.
5380 The Commission should incorporate those five elements into a comprehensive dispute resolution and enforcement framework.
5381 As for ex ante rules, first, there should be a prohibition against exclusivity of content, including temporary exclusives which give a vertically-integrated enterprise a head start. Independent distributors should have access to new channels, at the same time the integrated enterprise offers it to itself.
5382 Second, there should also be a prohibition against content pricing and packaging models that inherently discriminate against independent distributors and their customers.
5383 For example, such discriminatory models might include requirements for broad digital distribution or even analog distribution that frustrates both consumer choice and the Commission's digital migration policy and requirements that force independent distributors to charge consumers for services that they do not want.
5384 Bell Media has indicated that regulation is the absence of competition -- it will mean the absence of competition. I can tell you that the commercial demands by vertically integrated companies upon independent BDUs constitute constraints on their flexibility and capacity for innovation that far exceed any regulatory rules that have ever existed in Canadian broadcasting.
5385 Now, I will turn it back to Jim.
5386 MR. DEANE: Thank you, Alyson.
5387 I want to give you an example, a real world example of the realities of the current dispute resolution process, the "broken window" if you like:
5388 In 2008 CCSA engaged in a dispute with Rogers Sportsnet. That dispute is a good example of why the industry needs an improved dispute resolution process and, especially, a standstill provision.
5389 Rogers' offer required us to pay a significant rate increase for Sportsnet and for 70 percent of our customers' penetration, regardless of how many of those customers actually received the service.
5390 Sportsnet was a "modified dual carriage status" service and advised CCSA that it would no longer consent to basic carriage, unless Rogers was paid the rate that it wanted.
5391 The modified dual carriage rule only applied to Class 1 systems. At that time, CCSA had only one Class 1 system, Access in Regina. So we became a target.
5392 In February 2009, Rogers advised that if the CCSA did not accept its proposal, CCSA members would be de-authorized in two weeks. CCSA sought the CRTC's assistance in mediation. In response, Rogers cut off the Sportsnet high definition signals and regional feeds to Access Communications customers on February 20th.
5393 We asked the CRTC to order Rogers to reactivate the signals. The Commission said that it could not make such an order without first holding a public hearing. After having lost the signals for over a month, Access capitulated and paid Rogers' new rate card, including a retroactive payment. That was the only way to get the signals turned back on.
5394 In mediation, Rogers said that the signals that had been cut off were discretionary and, therefore, the CRTC's mediation provisions did not apply to them.
5395 The Commission conducted an expedited hearing on the 24th of April and issued its decision on May 22. It set rates well below those proposed by Rogers.
5396 Two weeks later Rogers advised that it would not permit any CCSA member who used the rates set by the CRTC to distribute Sportsnet's high definition signals or its regional feeds. Rogers again refused to consent to basic carriage unless we paid the rate card. We did.
5397 We were back to square one and, in the end, we had to accept the same rates and terms that had been proposed by Sportsnet in the first place, a 35 percent increase in just the first year of carriage.
5398 Bell Media has an offer out to BDUs for the distribution of 29 CTV services, including must have specialties such as TSN, CTV News Channel, Discovery and RDS.
5399 If negotiations with Bell do not go well, Access Communications customers could well find themselves facing withdrawal of a large number of services. There are 16 non-Category A services, including TSN, RDS and CTV News, that Bell could withdraw.
5400 Bell could effectively shut our company down by withdrawing a large portion of our television offering, even for a short period of time. In fact, if Bell were just to pull the TSN service during the Saskatchewan Rough Riders' football, I can assure you we would kill our business very quickly.
5401 As the Sportsnet example shows, the Commission's current rules cannot prevent that from happening. We have no effective recourse.
5402 Access provides high quality broadcasting services in one of the country's most competitive markets. However, we cannot compete against integrated companies like Shaw or Bell so long as there are no constraints on their market power and specifically on their ability to drive us out of business slowly by squeezing our margins and restricting our ability to package services for our customers, or quickly by withdrawing key inputs to our business.
5403 Access and other CCSA members play a vital role in Canada's broadcasting system. We contribute a great deal to the broadcasting system and we want to keep contributing.
5404 On behalf of all of our members I thank you for the opportunity to speak with you today.
5405 THE SECRETARY: Thank you. I would now invite Cable Cable Inc. to begin.
5406 Please introduce yourself, after which you have 10 minutes for your presentation. Thank you.
5407 MR. FIORINI: Mr. Chair, Vice-Chairs and Commissioners, good afternoon.
5408 My name is Michael Fiorini. I'm the Vice-President and General Manager of Cable Cable Inc., Fenelon Cable Inc. and Bobcaygeon Cable Inc. For the purpose of this presentation I will refer to all three companies as simply "Cable Cable".
5409 I am also the son of the founder of Cable Cable, Mr. Tony Fiorini. It's unfortunate he can't be here today but I'm sure he is watching us all very closely via the CPAC OTT app on his iPad.
5410 Cable Cable was founded in 1983. It was one of the first systems signed to launch such services as TSN, MuchMusic, Court TV, the Gameshow Network and, very recently, Sportsnet One.
5411 I mention these services because they were all well received and deemed as important by our customers in having distinct and entertaining services to choose from.
5412 Cable Cable was also the first to launch in our area other new and exciting services such as a cable and wireless high speed internet, competitive local number home phone services, fibre-to-the-home connectivity, video on demand and now we boast the most free high definition services on basic in Canada.
5413 Cable Cable currently employs 18 fulltime and four part time/cooperative people. These are all people I grew up with as both a resident to the area and as an employer/employee at Cable Cable. They have made a career in being here. We all shop, play and eat in the same area as our subscribers.
5414 We have grown a culture where the line between work and home has disappeared. We all look out for each other in this family first lifestyle.
5415 We operate a local community channel which currently offers 200 hours of original, area-specific programming every year which includes high school sports, community festivals, parades; theatrical productions.
5416 We have a great working relationship with neighbouring MSOs to trade community video assets because although our boundaries may stop where the other starts, the people served in each system still demand and deserve this type of programming free from monopolistic interruptions.
5417 Our community involvement also includes several partnership programs and sponsorships to community-based services and events. I will not list -- I will not name everything on the list. We have limited time today, but it's a large list.
5418 Despite our size, 4,000 subscribers between all three systems, and our remote location in the Kawarthas, which is approximately 200 kilometres from Toronto, we have managed to offer advanced infrastructure such as switch digital video, fibre-optic interconnect to acquire non-sat based services, redundant 10 gigabit IP network transport and diverse routing to a major network point of presence at 151 Front Street in Toronto.
5419 We did all of this through honest hard work, striking key partnerships and making smart investments.
5420 We are unique in our ability to be small and still compete with much larger, deep-pocketed, vertically integrated rivals who are changing the nature of competition on a daily basis.
5421 I daresay there is no one like us in the industry worldwide.
5422 This has worked for us in the past on the premise that we are able to provide our customers with quality services, fair pricing and exceptional support. With the increasing competitive pressures stemming from vertically integrated groups, this premise is in danger. This will only be to the detriment of the customers we service.
5423 It concerns us greatly that our direct competitors have the same bank account as the companies we pay infrastructure access fees and negotiate signal contracts with.
5424 To go further, it concerns us that the same bank account takes and deposits from other direct competitors of ours for high speed internet, home phone and wireless services and now video on demand including over the top for movies and primetime TV.
5425 It is disturbing to read public commentaries made by vertically integrated companies, specifically relating to:
5426 - The setting aside of exclusive content for distribution through integrated downstream retail channels, i.e. BNN exclusive for mobile business customers;
5427 - The creation of reciprocal exchanges for services with other vertically integrated groups, i.e. TSN for Sportsnet.
5428 - The employment of the obvious acquired advantages through vertical integration to absorb and/or limiting costs to themselves while hefting it upon the direct downstream competitors, i.e. Bell will not pass on VFS costs to its customers.
5429 These conglomerates now own the lion's share of everything we must consume in order to compete with them or, more dramatically put, in order to survive.
5430 To simply call this type of company a competitor or a rival is not fitting enough. They are much more than that. It eludes me as to what we should name something with so much power and control over the marketplace and the economics of our company.
5431 We are seeing our payables to the entities, these entities, increasing dramatically. At the same time, we are seeing an increase of restrictions on our distribution and the services we acquire at those higher prices.
5432 To date, we have always been able to meet competitive threats including in the late 1990s the new DTH licensees. I attribute this to the diverse ownership that was existing at the time.
5433 Meeting fair competition is one thing. Meeting the challenges presented by dominant, integrated companies who have the incentive and the ability to drive us out of the market through anticompetitive behaviour is an entirely different thing.
5434 Now, our margins are being squeezed, our investment capabilities diminished.
5435 Our ability to offer an attractive product tailored to our customers' needs is being restricted. This is no longer fair competition. This is something else and that's the real point.
5436 It is clear to us that such a shift in competitive landscape requires a revised set of rules. For us the requirements are simple:
5437 - An opportunity for fair negotiations.
5438 - An ability to distribute program services in accordance with the CRTC's rules.
5439 - Non-discriminatory pricing that does not punish competitors for their small size.
5440 - And a simple, cost-effective and expedient arbitration process which should be mandatory in the event of a breakdown in achieving these goals.
5441 Regarding the arbitration process, it is important to emphasis such a framework must be time-sensitive and include strong, undue preference, reverse onus and standstill provisions. Otherwise, its effectiveness just isn't there.
5442 Also, I think it's time for you to seriously ask why the larger, vertically integrated companies should be permitted to pursue a legacy volume-based pricing mentality that permits them to pay significantly less than we do for the exact same services.
5443 Why should distributing "must have" services like TSN through Fenelon Falls or Bobcaygeon have such a cost differential? How does that serve the interests of rural customers like ours? Where is the economic justification?
5444 I realize I'm not putting detailed evidence before you regarding exactly how our margins are being squeezed and our distribution flexibility restrictive. I came here a little uncertain about what I could and could not say in a public hearing.
5445 But what I can tell you is that we have received termination notices from "must carry" services from Bell Media and subsequently have received a new contract from them through the CCSA for almost their whole bucket of programming services.
5446 I can also tell you that this first draft contains rate increases and penetration requirements that will seriously impair the profitability of my company's BDU. So, yes, the bogey man is real.
5447 I expect to see in very short order similar demands from the programming undertakings owned by other integrated companies.
5448 I expect to see significant rate increases combined with restrictive packaging conditions across a whole range of services owned by the integrated companies with a cumulative result that will almost certainly place our company in jeopardy.
5449 It is completely different from anything we have faced in the past. If we do not have a comprehensive policy framework designed to maintain healthy competition, it is a new risk that completely changes our business and operational planning, our financing prospects and our investment plans.
5450 My father started Cable Cable to meet a demand in our community. We have grown with the community and we have continued to bring up to date services to that community. We do this by innovating to create solutions that we can implement even at our small scale.
5451 We remain relevant and important in our community. Our customers stay with us because they value what we offer. They do not want to be customers of a national DTH service somewhere else.
5452 However, if the conditions are not met for fair, sustainable competition that's exactly what will happen to them, and we think sooner than later.
5453 Cable Cable endorses the recommendations made by the CCSA in its submissions. We urge the Commission to recognize the importance of this proceeding not only to Cable Cable but to also the many other smaller independent distributors who serve Canadians and smaller, remote markets across this country.
5454 We urge the Commission to implement a balanced policy framework that will promote fair competition among all players for the opportunity to deliver broadcasting services to Canadians.
5455 We appreciate your time to accept these remarks.
5456 THE CHAIRPERSON: Thank you for your presentations.
5457 Mr. Deane, thank you for giving us a life example but I'm afraid it's too dense. I don't understand it. Explain to me. Up to paragraph 26 I understand you finally got a lower rate as a result of arbitration. But then in 37 you say:
"Two weeks later Rogers advised that it would not permit any CCSA member who used the rates set by the CRTC to distribute Sportsnet's ... signals or its regional feeds..."
5458 But you just won the arbitration and then they told you, you couldn't? Explain this to me what is going on here.
5459 MR. DEANE: Well, if we paid the rate that the Commission had set, we wouldn't be allowed to distribute the high definition signals or the regional signals.
5460 THE CHAIRPERSON: Oh, it's the HD. The arbitration was what, was for the SD or for the analog version, was it?
5461 MR. DEANE: That's correct.
5462 THE CHAIRPERSON: And you didn't feel like going to arbitration again?
5463 MS TOWNSEND: We did, in fact, contact the Commission --
5464 THE CHAIRPERSON: Yeah.
5465 MS TOWNSEND: -- who indicated to us that they believed that Sportsnet was within their right. As they were a modified dual carriage status service, they did not have to consent to basic carriage which is what Access needed.
5466 THE CHAIRPERSON: So it turned out to be a pyrrhic victory.
5467 MS TOWNSEND: That's right.
5468 THE CHAIRPERSON: And how, if we adopted any of the rules that you suggest, would that cure this defect?
5469 MS TOWNSEND: What we are asking for in a standstill provision is that, number one, it would be all services owned by that vertically integrated company.
5470 So what Sportsnet was able to do in that example was hive off the HD and hive off the regionals even though we would certainly argue that those are part of the signal.
5471 So the solution is to make sure that when a standstill applies, it applies to all of the services owned by that vertically integrated undertaking.
5472 THE CHAIRPERSON: I am not so sure that would have helped you here. It would have helped you in the first instance not to be cut-off. I understand that. But once you won on the SD that still wouldn't have prevented them from demanding more payment on HD.
5473 MS TOWNSEND: You could be right about that. I believe that you are. However, as you say, if we wouldn't have been in this situation to start with they wouldn't have been able to cut it off.
5474 THE CHAIRPERSON: Yeah.
5475 And Cable Cable, what do you mean by paragraph 22 where you are saying -- where you are talking too much -- to condense it, the "legacy volume-based pricing mentality".
5476 What exactly are you driving at here?
5477 MR. FIORINI: Our competitors who belong to vertically integrated groups. Obviously there are some advantages to being so, one of them likely being their size. They attract a different price than what we pay --
5478 THE CHAIRPERSON: Yes.
5479 MR. FIORINI: -- on a per-subscriber basis.
5480 THE CHAIRPERSON: But I mean, isn't that a perfectly normal business function that you have volume discounts?
5481 MR. FIORINI: Well, it's a subscription-based service and it's my opinion only but when my subscriber buys "Time Magazine" in Fenelon Falls, it costs the same as it costs in Toronto. It doesn't matter which newsstand they buy it at.
5482 MS TOWNSEND: Our members --
5483 THE CHAIRPERSON: Yes, but you are not -- the acquisition costs of "Time Magazine" from the publisher by the newsstand may vary depending on how many he buys. I don't know. I have no idea what kind --
5484 MR. FIORINI: The acquisition cost for us is -- I assure you it's higher than it would be for our direct competitors. Our direct competitors are often the ones that supply us with the signal in the first place.
5485 THE CHAIRPERSON: You are talking integrated company now?
5486 MR. FIORINI: Yes.
5487 THE CHAIRPERSON: I'm sorry.
5488 MS TOWNSEND: That's fine. I believe that Michael answered the question.
5489 THE CHAIRPERSON: Okay.
5490 Candice, I believe you have some questions?
5491 COMMISSIONER MOLNAR: I do.
5492 Good afternoon. So you have come to this proceeding a little later in the week. I'm sure you have heard what has gone on through the week. You have heard some of the questions asked and answered and I am sure you have heard a number of questions as to why it would be appropriate to go forward with ex ante rules and why are ex post rules not sufficient.
5493 So going through your submission here to us today, you begin with a number of what you consider to be very important points, beginning -- you say the keystone is the standstill.
5494 And they are all essentially ex post measures. You put in place standstill, you enhance dispute resolution, you put in place reverse onus -- I am trying to remember what the fourth is -- oh, and to look at the full commercial agreement and not just an agreement in front of us. Is that correct?
5495 MS TOWNSEND: That's correct.
5496 COMMISSIONER MOLNAR: Okay. Then you go on to say "As for ex ante rules" and you lay out a number of rules related to pricing and packaging.
5497 So my first question is: If the ex post measures were enhanced, if you could be confident that disputes would be addressed on a timely basis, that standstill provisions were in place, and I will also add in there a head-start rule had been addressed in a standstill type of a measure, so a save harmless kind of approach going into disputes, how necessary really are the ex ante rules you have put forward?
5498 MS TOWNSEND: I think how we see that is that there would be -- I think there was talk of a policy that would give a framework or guidelines to companies who are about to embark on mediation or arbitration so that you knew roughly what the guidelines were, what the Commission found acceptable, and we actually have already submitted a Schedule C to our submission, our proposed policy.
5499 The one thing that we are a little concerned about regarding a policy is that it does not have the force of regulation. So we think that it should somehow carry that force.
5500 The other thing that we are concerned about is when that is going to start because, you know, this has been a large hearing, it's going to take a long time for the Commission to come to terms with everything that it has heard. Meanwhile, we are in the midst of very sensitive huge negotiations and we are quite concerned that there is no standstill provision at this point in time.
5501 So one of the things that maybe we bring to the Commission's attention that no one has mentioned yet is that during the interim, up until you make a decision, it's going to be very important to the people that we represent, the unintegrated companies, that they have some sort of a standstill provision immediately.
5502 So that was something that hasn't been mentioned and I think that it's worthwhile bringing it to your attention. I hope I have answered your question.
5503 COMMISSIONER MOLNAR: So your Schedule C, which is the summary of recommendations of all the changes you would like to see with the framework, is what you would propose as a code?
5504 MS TOWNSEND: That's correct. I think that we would like to look at it again in light of everything that has happened here and refile, as everybody else is, but that would be substantively what our proposal would be.
5505 COMMISSIONER MOLNAR: Okay. Because it is blanket rules on packaging, blanket rules on pricing, blanket rules on tied selling, blanket rules on exclusivity. That doesn't really sound like a code. That sounds like a set of ex ante prohibitions on commercial activity.
5506 MS TOWNSEND: We see them as more general guidelines.
5507 COMMISSIONER MOLNAR: But you are going to take another stab at it, so --
5508 MS TOWNSEND: We will.
5509 COMMISSIONER MOLNAR: Okay.
5510 MS TOWNSEND: We never miss the opportunity to take another stab at it.
5511 COMMISSIONER MOLNAR: Okay. Let me go back to my questions then.
5512 I need to ask you about content exclusivity. You propose -- is that something you are going to take another stab at or do you stand firm in your prohibition on exclusivity of all content on all platforms?
5513 MS TOWNSEND: First, I would like to pass this one to Harris Boyd and then maybe, George, if you could add, from a competitive point of view, your view.
5514 MR. BOYD: Yes, Commissioner Molnar, we have listened carefully all week to the various proposals that have been presented and on exclusivity I think we would probably come down closest to the TELUS proposal.
5515 So there would be a blanket prohibition on exclusivity but the group that thinks that they should have an exclusive use on mobile platforms or something else would be able to come to you and justify that exception.
5516 We recognize that the world is unfolding very rapidly and these rules may be in place for quite some time, so there could be exceptions but they should be justified. So it would be on a case-by-case basis.
5517 But other than that we don't think anyone, and not just the vertically integrated companies, should have exclusives.
5519 DR. HARITON: No. Basically again, I would only repeat what Harris said.
5520 COMMISSIONER MOLNAR: Okay.
5521 Well, you may have heard the discussion we had this morning with Cogeco, and having a blanket prohibition is easy from a regulatory perspective but has the greatest danger or potential danger of stifling some of the benefits that could flow from exclusives such as innovations in services or technologies and so on.
5522 I believe what I heard this morning is that our concern is whether exclusives -- from a competitive perspective your concern should be whether the market power could allow them to create exclusives that would significantly lessen competition within the competitive market that they're operating in, which in that case would be the wireless market.
5523 What are your comments on that?
5524 DR. HARITON: Yes. What you have here are really two different effects which counterbalance.
5525 On the one hand, exclusives can in certain circumstances encourage innovation, and the law recognizes that. That's why you give patents to people and things like that.
5526 On the other hand, it's widely known also that competition tends to encourage innovation and so you do have a balance. Where you strike the balance is a tricky business. This is what IP law is all about.
5527 By and large, what we know in economics is that competition tends to do a better job of driving innovation than does exclusives. Now that is not always true. This is why our proposal is that there certainly can be exceptions.
5528 So if somebody comes in and says, you know, we have this innovation but to make it work we really need to have an exclusive, that is something the Commission can look at and decide yes, that's so, and grant it. So it's not black and white.
5529 However, in the vast majority of circumstances, I think you will find that the exclusive may well -- I mean it will harm competition. It's not clear how much it will help the innovation.
5530 Now, I know that that is a fact-sensitive argument and it's not an easy line and this is why we think that this kind of thing is best dealt with through some kind of dispute resolution. In other words, we don't want the Commission to be tied up forever and tie up its resources. Some of this could go off to resolution in other cases.
5531 MR. BOYD: And just to comment on those proposals by others, including Cogeco and Astral and more recently the CBC, there's a lot to be said for having something that's simply from a regulatory point of view, and blanket, as you said, is very, very simply.
5532 If you try and say like Astral, well, it only applies to publicly funded content or Cogeco, I believe, said content that's going to go on the regulated broadcast platform, and I think CBC content, except the content that they own, I guess, is exactly the way they put it, but not content that the VI companies own, I think to try and define it gets it a lot fuzzier and we're all trying to predict the future. So it's very hard to have a real good definition that may be workable in the run.
5533 So having a blanket prohibition with exceptions that they come and justify to you seems to us the best way to go forward.
5534 COMMISSIONER MOLNAR: I will just say to you that that doesn't seem like a compelling argument to me. It's hard to define, we don't know what it is, but prohibit it, and if they have an innovative application that would benefit the consumers, come and get our approval.
5535 MR. BOYD: But we don't think that -- we actually don't think that this will stifle innovation. We also think all consumers should have access to it. So if there are more consumers paying more money and they're getting more revenue, we think that might help their innovation as well.
5536 Just limiting it to their customers only for a short- of long-term competitive advantage doesn't necessarily promote innovation. There's a lot of innovation in the industry.
5537 So essentially we're not saying it can't be developed and it can't be distributed. We're just saying make it widely available so everyone can benefit, and from the consumer point of view that's better.
5538 COMMISSIONER MOLNAR: Are you proposing that this prohibition would apply to all distributors and carriers within the Canadian system or are you proposing to apply this only to vertically integrated carriers?
5539 MR. BOYD: I think we are most concerned about the vertically integrated companies because they are also our major competitors. But if in the name of simplicity it was applied generally, I don't think we would have any problem with that either.
5540 COMMISSIONER MOLNAR: Okay.
5541 I have some questions that relate to the submission you put in and they are just in my order here. I do want to cover them off though.
5542 I had looked at your submission and I had looked at the submission of some of the other independent distributors and there were a couple of areas where you differed somewhat and I wanted to kind of highlight those given that we have discussed the other proposals a couple of times now.
5543 One is the safeguards for commercially sensitive info. Others have come forward and suggested a CSG-like approach and I think you have suggested we don't need to go that far.
5544 So can you explain to us why you believe that -- I think what you have suggested is that you want just senior officers to attest to the fact that they are keeping the information confidential and you think that is sufficient.
5545 So why is it you believe that that would be sufficient?
5546 MS TOWNSEND: We were looking for a simple solution and looking to, as much as we could, take into account the resources of the Commission or the limited resources that might be available for such a thing and thought that this might be a good approach.
5547 The approach of Cogeco, we have looked at it, and quite frankly we would certainly support that as well, as well as most everything that Cogeco said this morning. We thought it was an excellent presentation, which enunciated a lot of the principles we also are bringing to the Commission today.
5548 MR. BOYD: And maybe just to comment. I mean I think the culmination of our proposal and the CSG is actually probably the best solution because it's nice to have a senior officer of the company -- and I think it was the Chairman that used the word "affidavit" the other day. I think we were a little lighter than that word but something that's legally binding.
5549 We do like that and the CSG concept works extremely well. So we sort of evolved a bit in listening to them, but if you went that route, we would be very happy with that as well.
5550 COMMISSIONER MOLNAR: I would expect you to be happy with the CSG if you were satisfied with an affidavit.
5551 MR. BOYD: It just makes me happier.
5552 COMMISSIONER MOLNAR: I wanted to talk a bit about skinny basic. You have heard us talk about this and I was wondering -- you talk in your submission quite a bit about being forced to put services onto basic or increase penetration and so on.
5553 And so this notion of a skinny basic, is that something that you believe is valuable in any way to you? Give me your perspective on skinny basic, both as someone who is in negotiations and being forced into high penetration and putting items on basic, but also then from the perspective of consumers, if you don't mind.
5554 MS TOWNSEND: Thank you.
5555 We have discussed this a lot. I'm afraid the Chairman is not going to like our answer.
5556 But, first, I will turn that over to Harris Boyd and then I would ask the owner/operators that are here to give you a practical perspective.
5557 MR. BOYD: You have heard from all the distributors that have been before you and I think they have restrained their enthusiasm for a skinny basic quite well and I don't want to reiterate the arguments that they have made.
5558 I think I understood the Chairman this morning to say that you now understand the technical difficulties and the costs with trying to do this in analog, and I don't know whether that's off the table, but if it is, that certainly helps our concerns, because other than a very few small systems that are 100 percent digital, every single one of our 110 member companies and the 400 systems they operate still have analog and many will have analog forever because if you haven't gone digital by now you are probably not going to.
5559 We even have situations where we not only don't have a skinny basic, we have an obese basic because we have systems, small systems, who offer every single service as part of the basic package.
5560 They do it for very cost-effective reasons. They don't have to have any traps. There's a lot of reduction in theft because people have a tendency to remove traps. It's cheaper rates of programming services on basic. Obviously, marketing costs are pretty low when it's only one thing. So it's this or nothing.
5561 And because there are at least two other competitors in the marketplace, if people don't like that particular basic package, they can get a smaller one from DTH.
5562 But we look at it from a consumer point of view of what is good value for money. In these little systems they're offering 50-60 services, with all of the popular services, the historic ones, for about $30. Their competitors are offering 30 services for about $25. Now, we also give free technical service and it's a pretty competitive offering and their customers really like it.
5563 If they want something with essentially the over-the-air plus a few 9(1)(h), but 9(1)(h), let's not overrate its popularity with our customers. Local is what counts. They can get that in two ways: over-the-air with an antenna or soon with Shaw's new free offer that comes out of the benefits package. So there's options.
5564 The final thing I would say before I turn it over to Jim is the best way to have consumer choice is to have different types of basic packages, not everyone offering the same thing. So they can take ours, they can take Shaw's or they can take Bell's. They're all different and it seems to me that's the best choice.
5565 But we think value for money is important, not cheap or free. If people want those, there are options. But we give good value for money. You can't do it in analog because in a hybrid system we would still have to trap out the analog even though digital is there.
5567 MR. DEANE: Thanks, Harris.
5568 Just a point of clarification. I'm an operator, not an owner, unfortunately.
5569 I will give you the consumer perspective in Regina, a little bit bigger market. You're aware of the difficult of skinny basic in an analog system. Regina is completely digital in a hybrid analog/digital system.
5570 Today, less than 5 percent of our customers take -- or 5 percent of our customers take what we call basic and it's 29 channels, it's $24.95 a month. And it's falling. That percentage is falling. There's not a lot of consumer demand for it but it is a significant and important market for us, by and large seniors.
5571 And being in a competitive market space, if there's demand, we will certainly offer something. But I can tell you the seniors aren't really excited about a set-top box. That's the reason they're taking our basic service, I guess a version of skinny basic, with 29 channels and $24.95 a month. But we are seeing that percentage of consumers decline over time. Today it's 5 percent of our market. I expect in a year or two it will be 3 percent.
5572 COMMISSIONER MOLNAR: Just to be clear, when some of these negotiations are going on, I had understood in some situations the programmers/broadcasters were going to you and demanding that they be on basic.
5573 MS TOWNSEND: That's correct. That's correct, especially digital basic at this point in time.
5574 COMMISSIONER MOLNAR: So if that choice was not open, would that make any difference to you?
5575 MS TOWNSEND: We think how that would end up -- because we have looked at that -- we think we would end up with two basics. We would have the skinny basic and the basic that they demand it to be on, and we think that that will just confuse the customer.
5576 COMMISSIONER MOLNAR: Okay, thank you.
5577 I want to talk a bit about dispute resolution. That is important to you. You have said an enhanced dispute resolution, enhanced time frames and so on. In fact I believe that you have put forward -- one of the few in this proceeding, I would say, who have actually put forward recommendations or suggestions as to how the dispute mechanism could be enhanced. So I have a couple of questions.
5578 First of all, you say one of the things that needs to happen is we need to recognize CCSA as the bargaining unit. Can you explain what you mean by that?
5579 MS TOWNSEND: That actually has already happened. But in the U.S., in the Comcast decision, part of the hurdle that they had to get over, the American Cable Association, which is our counterpart in the U.S., they had to be recognized as the bargaining agent for their member companies.
5580 That has actually already happened in Canada. We have appeared before the Commission in arbitration and mediation proceedings as the bargaining agent for our members. So that was simply for clarification.
5581 COMMISSIONER MOLNAR: Okay.
5582 You also suggest that the CRTC should outsource arbitration of commercial agreements and I have been informed we don't actually have the authority to outsource arbitration.
5583 But is there anything that stops you? How often when you're in these contractual disputes do you go to third-party arbitration before you would come to the Commission, for example?
5584 MS TOWNSEND: Never. First, the other party would not agree to it. The only way that we can get to an arbitration or a mediation is through the Regulations. So if we requested third-party mediation, I'm certain the other side would not agree. So our only choice is to go through the Commission. We would do third-party mediation if it were available to us.
5585 COMMISSIONER MOLNAR: Okay, thanks.
5586 You also propose that small BDUs have the ability to recover their costs and I'm wondering if you could just expand on that and what authority you view we would have to enable you to recover those costs.
5587 MS TOWNSEND: I'm going to partly answer to this and then I'm going to turn it over to Chris to answer the authority part of it.
5588 But that again -- our proposal is a combination of three different places we have gone in our research.
5589 One is the Comcast decision and that is where that particular clause came from.
5590 The other one is Hank Intven's proposal which was made in -- I think it was -- was it 1985?
5591 MR. BOYD: 2007.
5592 MS TOWNSEND: Oh, 2007, sorry.
5593 And the third was, I believe, Cogeco's submission.
5594 So those are the three places that we have gathered our information from that you see in the proposal, and that particular clause comes out of the Comcast decision.
5595 They were concerned, in that case -- and it is, I agree with Cogeco, a fabulous blueprint for what is before the Commission right now -- but they were dealing with the smaller players or the non-vertically integrated players and how they didn't have access to mediation and how costly it was. So they dealt with the cost there.
5596 As far as your authority to do so, Chris, could you handle that?
5597 MR. EDWARDS: Sure.
5598 So again, we were following an example that was laid out before us in the FCC decision and we thought was very attractive because it addresses a very practical problem that the small people face when they go to dispute resolution or arbitration.
5599 The question of authority is vexed just the way the question of authority to award administrative monetary penalties is I think. There is no clear line like there is in the telecommunications legislation to get there.
5600 What I would suggest is probably worth exploring is whether the Commission could, under its power to make regulations under section 10, specifically with respect to mediation, create a structure there.
5601 COMMISSIONER MOLNAR: I can ask no more questions on that subject.
5602 COMMISSIONER MOLNAR: But I do want to go on to another area that I know is important to you and that is signal transport.
5603 You have very significant reliance on Shaw, you have laid it out in your evidence. Are there alternate sources of supply available to you?
5604 MS TOWNSEND: Well, there is Bell. However, that is a limited alternative because of the Motorola head ends that most of our members have.
5605 COMMISSIONER MOLNAR: Yes. Technology.
5606 MS TOWNSEND: Yes.
5607 COMMISSIONER MOLNAR: Yes. You would have to replace your full head end.
5608 MS TOWNSEND: Correct.
5609 COMMISSIONER MOLNAR: Yes.
5610 MR. EDWARDS: Just based on geography, some members have the ability to interconnect via fibre as well, but that's a limited subset of our membership.
5611 COMMISSIONER MOLNAR: So you have proposed a reversed onus for the SRDUs. Could you tell me what that would actually do for your members?
5612 MS TOWNSEND: Well, I think first our concern with respect to the SRDUs is that they are not actually required to supply us with transport, so it is not a part of their license, which is very concerning that they could withdraw those signals at any time. So that's the first concern.
5613 The second concern is, because that's not part of their license, we have no ability to access mediation or arbitration on those issues. So that would be the next thing that we would need to be able to do, is if we were unable to agree with them to access the standstill provisions and access the mediation provisions.
5614 It is in that context that we would ask for a reverse onus, which is, because they have the DTH and the signals are there, what is the incremental cost to them. That's what we are asking that they disclose in a reverse onus fashion once we get to mediation arbitration, should we end up there, which hopefully we never would.
5615 THE CHAIRPERSON: Excuse me, but what has all of this got to do with vertical integration? Your situation with SRDUs is the same now as it was before any of the vertical integration took place.
5616 MS TOWNSEND: Well, not quite, sir, because the DTH -- now they would have a reason to increase our costs in that area because they own the DTH services. They also own the programming services so they have become much more vertically integrated.
5617 MR. BOYD: I think there is another issue as well that does relate to this, is that they could choose only to transport the services that they own and they could refuse to give us other services that we need and we would have no other option.
5618 So I think that is what has actually changed, because they now own a very large stable of services that we absolutely need and its discretionary whether they give them to us or not on transport.
5619 MS TOWNSEND: I would like to ask George to make a comment.
5620 DR. HARITON: Let me just add one more thing. Sorry, Mr. Chairman.
5621 We expect that under the vertically integrated framework affiliation fees and fees for content will be going up. Now, there may well be obstacles to that, whether regulatory or public relations or anything else.
5622 Now that the SRDUs are vertically integrated into both the programming and the distribution arms, they could, instead of increasing affiliation fees, in certain cases they could increase the fees for carriage of signals and achieve the same thing through a different mechanism.
5623 So fees for carrying signals, signal carriage fees are in fact yet one more tool that you can use to achieve whatever objective you are trying to achieve on your vertically integrated front.
5624 COMMISSIONER MOLNAR: Just to be clear, that's why you have suggested when there is a dispute to look at the full corporate --
5625 MS TOWNSEND: Absolutely.
5626 DR. HARITON: That is right.
5627 COMMISSIONER MOLNAR: -- you know envelope --
5628 MS TOWNSEND: Yes.
5629 COMMISSIONER MOLNAR: -- because it is all the different elements.
5630 MS TOWNSEND: That's right.
5631 COMMISSIONER MOLNAR: Okay. Thank you.
5632 Those are my questions.
5633 THE CHAIRPERSON: On that point, I'm sorry, but I don't follow the logic at all.
5634 You are captive right now to Shaw because of the technology. You have 90 percent being transferred by Shaw, the other 10 percent by Bell, roughly in those proportions. You are going to be that whether there is a vertical integration in this or not. You can be gouged now, you can be kicked off now, et cetera, I don't see how that situation changes one iota because there is vertical integration.
5635 DR. HARITON: Let me try to explain it then.
5636 You are quite right that right now the independent BDUs are captive to Shaw and Shaw will set a rate which will look at profit maximization and that part over there doesn't really change in its own context.
5637 However, what we now see is that through the vertical integration of the content and the distribution arm there is going to be an incentive, we believe, and also an opportunity, to increase the price for the content charged by the program -- the programmer to the independent distributor.
5638 Now, if there is some reason that they cannot increase that price as much as they would want, and that may be the Commission's nondiscriminatory rules or it may be some other form which says although you would maximize your profit between the programming and distribution arms by increasing prices, you can't do it.
5639 Now you can do it through the back door. It will no longer maximize -- a price increase there will no longer maximize the profit from the SRDU alone in isolation, but when taken into context of both the programming and distribution arms, the three arms together, increasing the SRDU price could in fact increase the overall profit. It's a substitute.
5640 THE CHAIRPERSON: In a long way you are saying it's an additional lever they have for you.
5641 DR. HARITON: Yes.
5642 THE CHAIRPERSON: Yes.
5643 DR. HARITON: That's a good way of putting it.
5644 THE CHAIRPERSON: Fine. Okay.
5646 MR. BOYD: You know, there is another point to that.
5647 With independent programmers, they would not tolerate an SRDU denying other BDUs their service because they want wide distribution and they would say to Shaw as an independent broadcaster -- we will just say it's Shaw at the moment -- you can't stop access communications from receiving our signals or we will take action against you in terms of your own distribution platform.
5648 When Shaw owns, as they do now, many, many more signals, for them to deny those signals to us there is a real incentive to do that because our customers would then move over to their platform. That is the really big change, is the suite of services that they now control actually makes this possibility a reality.
5649 THE CHAIRPERSON: Okay.
5651 COMMISSIONER MENZIES: I'm good.
5652 THE CHAIRPERSON: Okay. Anybody else?
5653 Okay, thank you very much. I think we had an exhaustive discussion and we understand your point of view now.
5654 Alyson, I commend you to draft -- submit a code with your principal concerns.
5655 MS TOWNSEND: Thank you very much. Thank you for listening.
5656 THE CHAIRPERSON: Thank you.
5657 I think that's it for today, Madam la Secrétaire.
5658 Nine o'clock on Monday morning.
5659 THE SECRETARY: That's correct.
5660 Thank you.
5661 THE CHAIRPERSON: Thank you.
--- Whereupon the hearing adjourned at 1557, to resume on Monday, June 27, 2011 at 0900
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