TRANSCRIPT OF PROCEEDINGS BEFORE

             THE CANADIAN RADIO‑TELEVISION AND

               TELECOMMUNICATIONS COMMISSION

             TRANSCRIPTION DES AUDIENCES DEVANT

              LE CONSEIL DE LA RADIODIFFUSION

           ET DES TÉLÉCOMMUNICATIONS CANADIENNES

                      SUBJECT / SUJET:

Review of the regulatory frameworks for broadcasting distribution undertakings and discretionary programming services /

Révision des cadres de réglementation des entreprises de

distribution de radiodiffusion et des services de

programmation facultatifs

HELD AT:                              TENUE À:

Conference Centre                     Centre de conférences

Outaouais Room                        Salle Outaouais

140 Promenade du Portage              140, Promenade du Portage

Gatineau, Quebec                      Gatineau (Québec)

April 9, 2008                         Le 9 avril 2008

Transcripts

In order to meet the requirements of the Official Languages

Act, transcripts of proceedings before the Commission will be

bilingual as to their covers, the listing of the CRTC members

and staff attending the public hearings, and the Table of

Contents.

However, the aforementioned publication is the recorded

verbatim transcript and, as such, is taped and transcribed in

either of the official languages, depending on the language

spoken by the participant at the public hearing.

Transcription

Afin de rencontrer les exigences de la Loi sur les langues

officielles, les procès‑verbaux pour le Conseil seront

bilingues en ce qui a trait à la page couverture, la liste des

membres et du personnel du CRTC participant à l'audience

publique ainsi que la table des matières.

Toutefois, la publication susmentionnée est un compte rendu

textuel des délibérations et, en tant que tel, est enregistrée

et transcrite dans l'une ou l'autre des deux langues

officielles, compte tenu de la langue utilisée par le

participant à l'audience publique.

               Canadian Radio‑television and

               Telecommunications Commission

            Conseil de la radiodiffusion et des

               télécommunications canadiennes

                 Transcript / Transcription

Review of the regulatory frameworks for broadcasting distribution undertakings and discretionary programming services /

Révision des cadres de réglementation des entreprises de

distribution de radiodiffusion et des services de

programmation facultatifs

BEFORE / DEVANT:

Konrad von Finckenstein           Chairperson / Président

Michel Arpin                      Commissioner / Conseiller

Leonard Katz                      Commissioner / Conseiller

Rita Cugini                       Commissioner / Conseillère

Michel Morin                      Commissioner / Conseiller

Ronald Williams                   Commissioner / Conseiller

ALSO PRESENT / AUSSI PRÉSENTS:

Chantal Boulet                    Secretary / Secretaire

Cynthia Stockley                  Hearing Manager /

                                  Gérante de l'audience

Martine Vallée                    Director, English-Language

                                  Pay, Specialty TV and

                                  Social Policy / Directrice,

                                  TV payante et spécialisée

                                  de langue française

Annie Laflamme                    Director, French Language

                                  TV Policy and Applications/

                                  Directrice, Politiques et

                                  demandes télévision langue

                                  française

Shari Fisher                      Legal Counsel /

Raj Shoan                         Conseillers juridiques

HELD AT:                          TENUE À:

Conference Centre                 Centre de conférences

Outaouais Room                    Salle Outaouais

140 Promenade du Portage          140, Promenade du Portage

Gatineau, Quebec                  Gatineau (Québec)

April 9, 2008                     Le 9 avril 2008

- iv -

           TABLE DES MATIÈRES / TABLE OF CONTENTS

                                                 PAGE / PARA

PRESENTATION BY / PRÉSENTATION PAR:

Bell Canada                                       340 / 1944

Allarco Entertainment                             482 / 2696

CFTPA                                             524 / 2922

APFTQ / ADISQ                                     539 / 3003

Gatineau, Quebec / Gatineau (Québec)

‑‑‑ Upon commencing on Wednesday, April 9, 2008

    at 0900 / L'audience débute le mercredi

    9 avril 2008 à 0900

1940             THE SECRETARY:  Please be seated.  We are about ready to start.  Thank you.

1941             Bonjour à tous.  We will continue the hearing this morning with Bell Canada's presentation.

1942             Mr. Gary Smith will be introducing his colleagues, after which you will have 15 minutes for your presentation.

1943             Mr. Smith...?

PRESENTATION / PRÉSENTATION

1944             MR. SMITH:  Thank you and good morning, Chairman and Commissioners.

1945             I am Gary Smith, President of the Bell Video Group.  Joining me on our witness panel this morning is, to my immediate right, Mirko Bibic, Chief, Regulatory Affairs for Bell Canada.  To Mirko's immediate right is David Elder, Vice‑President, Regulatory Law, Bell Canada.  To his right is David Krause, Director, Economic Analysis for Bell Canada.

1946             To my immediate left is Chris Frank, Vice‑President, Programming for Bell Video Group; and to Chris' left is Barry Keifl, President of Canadian Media Research Inc.

1947             Also in attendance today, on Bell's behalf, although not on the panel, is Jeff Walker, Senior Vice‑President with the Market Research Firm of Harris/Decima.

1948             The Bell panel represents Bell Aliant with its Aliant TV distribution business, the Bell ExpressVu DTH business and the various Bell Canada terrestrial distribution businesses.  We are pleased to have this opportunity to share our thoughts on what is without question a critically important broadcasting regulatory review.

1949             Our comments this morning will have the following focus.  We are recommending a set of fundamental principles that we believe will guide and facilitate that Commission's development of a revised regulatory framework.  We will comment on the issues addressed by the Commission's five questions, and we will comment specifically on the issues of fee for carriage and distant signals.

1950             The broadcasting system is evolving ever more rapidly.  As a result, the Commission must establish a forward‑looking framework whose flexibility anticipates and accommodates change.  This goal cannot be achieved without a robust principled and analytical approach.

1951             I will now ask Mirko Bibic to present Bell's approach to the reliance on such principles.

1952             Mirko...?

1953             MR. BIBIC:  Thank you, Gary.

1954             Mr. Chairman, Commissioners, a good regulatory framework starts with a solid foundation.  The development of a forward‑looking framework for broadcasting distribution should be based on four key principles.

1955             Our first principle relates to the cultural objectives of the Act.  In support of this principle, Bell favours a sufficient degree of regulation to protect Canadian cultural interests.  This should anchor the regulatory system and we have taken the objectives of the Act seriously in developing our proposal.

1956             Sustained support for access to a diverse and predominantly Canadian broadcasting system is necessary.  Thus, a revised framework should feature a basic service comprising at least one of each of the CBC's English language and French language owned and operated television services, the service of at least one local affiliate of each of the major station groups operating on a national basis and those services authorized for distribution under section 9(1)(h) of the Act.

1957             This basic service will ensure that consumers can access Canadian priority services and the diversity of Canadian voices.  As well, BDUs must remain free to customize their basic packages by adding services, including non‑Canadian services.

1958             A revised framework should also feature a preponderance of Canadian services received by subscribers.  There is no need to regulate the number of Canadian services offered by BDUs as the Act's objective is already met with the preponderance of services received.  The reality is that BDUs are motivated to carry a broad range of Canadian services to meet consumer demands.

1959             The framework should also relax genre exclusivity.  Specialty genres should be open to Canadian competition.  However, the current prohibition against non‑Canadian services competing with similar domestic specialties should be retained.  This approach will provide consumers greater choice, encourage competition and protect the Canadian rights market.

1960             As well, regulation should ensure Canadian over the air broadcasters continue to receive needed advertising revenue through the maintenance of simultaneous substitution.

1961             Mr. Chair, these are all the elements required to make positive contributions towards achieving the objectives of the Act without imposing impractical or unnecessary restrictions.  Bell supports such regulatory continuity.

1962             This first principle acknowledges that the customer is in control; call it the autonomy or sovereignty of the consumer or market forces.  Canadians will continue to seek out the content they want and if their preferences are frustrated by regulatory constraints, they will seek out illegal or unregulated sources.

1963             Bell submits, then, that much of the remaining regulations is not required and that the Commission can increasingly rely on the marketplace to meet the objectives of the Act.  This is our second principle.

1964             While the revised framework must promote Canadian cultural content, it must also accommodate new technical realities and consumer preferences that may soon render its current protective mechanisms at best irrelevant and at worst counterproductive.

1965             The new framework should provide regulated distributors with the flexibility to better compete with each other and with unregulated distribution technologies.  For example, Bell proposes the elimination of must carry outside of basic service and all distribution and linkage rules.  Consumers should decide the fate of programming services, not the regulator.

1966             Bell's proposal to eliminate or revise current regulation should not be misconstrued as advocating a compromise or abandonment of the objectives of the Act.  It is simply that the marketplace can and will achieve many of the objectives of the Act on its own.

1967             Bell's third principle calls for continued regulation of key differences between cable and DTH distributors.  No one‑size‑fits‑all solution to regulation will suffice.  The rules for DTH and cable should be the same, except where technology and DTH's national footprint dictate otherwise.

1968             This position is based upon the government's 1995 Order in Council direction to the Commission.  Clearly what is called for is responsible regulatory symmetry, equitable but not necessarily identical.

1969             For example, cable companies are required to carry all local conventional channels in their local markets.  Broadcasters argue that DTH should be required to do the same and operate as cable in the sky.  However, our market is national.  The extra channels would consume 15 to 20 per cent of our capacity for standard definition services.  If forced to do this, we would have to drop 50 to 60 services, including many Canadian discretionary services, to make the space available.  This would cause significant damage to our business.

1970             Mr. Chairman, in a moment Gary will speak to the significant benefits that DTH has delivered to the system.

1971             DTH has brought competition to the television distribution business.  It is a business that was monopoly controlled prior to that.  We did it without any new entrant concessions.  We did it without any regulatory whining.  It's technology that made this possible, technological differences DTH that made this possible and regulation should recognize technological differences.

1972             As a fourth principle, we believe stakeholders should have access to a more effective dispute resolution process to resolve contentious issues, especially during the transition to a revised regulatory framework and as stakeholders pursue new broadcasting initiatives which may create competitive situations not contemplated by regulation even a short time ago.

1973             In summary, and before I turn it back over to Gary, Bell believes that these four principles should form the basis of the regulatory framework which will govern BDUs for the next decade.  We also believe that the Commission was on the right track in the Public Notice whose lines of inquiry focused on the consumer, Canadian content, technological change, reduced regulation and an increased reliance on the marketplace.

1974             The recent focus on fee for carriage and distant signals could be a significant step back and the assumed distribution model revealed in mid‑March seems to reflect a degree of regulatory oversight little removed from the status quo.  This is disappointing.

1975             Instead, we encourage the Commission to sustain the positive direction reflected in the Public Notice.

1976             Gary...?

1977             MR. SMITH:  Thank you, Mirko.

1978             Mirko has explained the principles that we believe should determine the new distribution regulations in Canada.  There are, however, two proposals for regulatory change before the Commission which Bell strongly opposes:  one, the imposition on BDUs of a fee for carriage; and, two, a Commission mandated settlement regarding distant signals.

1979             These proposals would negatively impact BDUs and other stakeholders while solely benefiting the OTA broadcasters.

1980             To provide some context for our comments on these proposals, I would like to take a moment to remind the Commission of the tremendous benefits that DTH has brought to the broadcasting system.

1981             Since its launch in 1998, DTH has brought over 1.7 million net new subscribers into the broadcasting system ‑‑ "net new" meaning subscribers who were not already cable customers.  This has generated over $2.4 billion in new revenue for Canadian pay and specialty services.

1982             Further, the DTH operators have contributed hundreds of millions of dollars to the Canadian Television Fund, other independent production funds and to the small‑market local programming fund.

1983             All of this has and will continue to be accomplished as a result of Bell's investment of more than $2 billion in creating the Bell ExpressVu business.  The Commission should note that Bell continues to invest in this business, despite having yet to see any positive free cash flow.

1984             Most recently we have put forward an innovative proposal called Freesat to assist with the free to air distribution of high‑definition signals outside major urban centers.

1985             In the spring of 2007, the OTA broadcasters failed to convince the Commission that an actual need existed for a cross‑subsidy from BDUs in the form of a fee for carriage.  The Commission ultimately determined that they had not made their case and Bell believes that nothing has changed since then that would warrant a different finding.  Most significantly, in the Public Notice, the Commission specified the elements that the broadcasters had to address to justify the imposition of a fee for carriage regime.  They failed to do so in several important areas, such as ignoring the impacts on specialty and pay services.

1986             There is strong evidence that this sector is not at all in the financial crisis that it claims.

1987             One, there continues to be strong investor interest in conventional station and network startups and acquisitions.

1988             Two, increased spending on U.S. programming is obvious.

1989             And, three, OTA broadcaster owned specialty services are sustaining impressive levels of productivity ‑‑ profitability, sorry.

1990             The broadcasters themselves acknowledge this.  Leonard Asper, President and CEO of Canwest Global Communications, recently noted to financial analysts that the margins from the Canadian conventional TV business, even without fee for carriage, are certain to exceed 10 per cent and claims that 20 per cent is a very realistic goal.

1991             A fee for carriage would be bad for consumers who would be taxed for services they already receive in return for no additional value, bad for independently own specialty services whose channels could be dropped by consumers looking to accommodate inevitable price increases, and bad for BDUs who already incur considerable expense backhauling, encoding and space segment, for example, distributing these signals.

1992             There is no doubt that broadcasters will come to rely on this tax, a purely regulatory fix, in support of their bottom lines.

1993             Of equal concern to BDUs is the broadcaster proposal regarding distant signals.  Viewing of distant signals in DTH households results in approximately 20 per cent greater viewing of Canadian OTA services than in non‑DTH households, representing a bonus audience for these broadcasters that would not otherwise exist.

1994             It is worth noting that much of this audience has been repatriated at the expense of U.S. programming services.

1995             Broadcaster claims of financial damage have been consistently exaggerated based as they are on unreliable evidence.  In any event, in the past this issue has been dealt with by our compensation arrangement negotiated between distributors and the Canadian Association of Broadcasters.  Under the current arrangement, and contrary to Rogers' statement yesterday, we pay the equivalent of 43 cents per subscriber for distant signals.

1996             When the Commission considered this issue last year, it rightly determined that a continuation of commercial negotiations would be appropriate.  Bell agrees and strongly encourages the Commission to issue a similar directive to the parties.

1997             To finish, I would like to remind the Commission that Bell ExpressVu has contributed considerably to the Canadian broadcasting system over the last 10 years, driving the introduction of digital television and bringing a diverse range of services to every corner of this huge country.  We look forward to continuing to play a vital role in fulfilling the objectives of the Act under a more streamlined and focused regulatory regime.

1998             We thank you for your attention and we welcome any questions you may have.

1999             THE CHAIRPERSON:  Thank you.

2000             As always when I see Mr. Bibic before me and he has a presentation, I am impressed by his logic and the logical way which he presents issues.  He has done this again with the principles.

2001             I think we don't really have an issue with your principles, but of course as always the devil lies in the details.  So let me ask you a few questions about your presentation.

2002             But before that, you mentioned in your written submission and this morning Freesat.  I must say it is the first time I ever heard about it.

2003             Could you explain to me what Freesat is and how it works?

2004             MR. SMITH:  Mr. Chairman, we have spoken about Freesat on a couple of occasions in front of the Commission, although perhaps not in front of the current Chairman.

2005             The concept is ‑‑

2006             THE CHAIRPERSON:  Humour me and repeat it.

2007             MR. SMITH:  I'm sorry?

2008             THE CHAIRPERSON:  Humour me and repeat what you said before.

‑‑‑ Laughter / Rires

2009             MR. SMITH:  Certainly, sir.

2010             The concept here is that satellite technology is a very, very efficient way to distribute television signals across a very wide geographical footprint which we have in Canada, and at the moment the terrestrial broadcasters are faced with the need to find a solution to distribute the new digital and particularly high definition signals across the vast tracts of Canada.

2011             One option is to follow the current technology, which is to build transmission towers and to enhance existing transmission towers in the various towns across Canada to carry these signals.  But that is a huge expense and I think we have to bear in mind that the viewing of signals over terrestrial distribution means is a very small amount.  The majority of Canadians do subscribe to a distributor such as ExpressVu.

2012             So to meet that need for the customers who don't wish to subscribe to a television service but still need to gain access to the digital signals, Bell ExpressVu believes that we can provide a service whereby we carry a certain number of high‑definition signals from each of the major national and regional networks on our satellite and we do not require customers to subscribe to obtain access to those signals.  All they would need would be the reception equipment.

2013             We think that it wouldn't damage the pay‑TV business model if it is restricted to just those signals that would otherwise be made available over the air, and it would enable the broadcasters to avoid the need for huge investments in the terrestrial transmission towers and distribution systems that would otherwise be necessary to carry these high‑definition signals.

2014             THE CHAIRPERSON:  Is this along the line of the deal that you have with APTN for Northern stations?

2015             MR. SMITH:  Yes, we have an arrangement with APTN which is very localized in nature; but yes, that is a similar concept.

2016             THE CHAIRPERSON:  So a small community, let's say Moose Jaw, rather than having to build a new tower to transmit high definition TV and digital TV, would ‑‑ how does it work?  The broadcaster signs on with you and everybody in Moose Jaw can receive the local station on a Bell ExpressVu receiver and satellite as long as they buy a receiver and satellite ‑‑ an antenna and satellite ‑‑ and a blackbox?

2017             MR. SMITH:  Simply put, yes.  I think the essence of the arrangement would be that consumers would need to acquire their own distribution ‑‑ their own receiving equipment, but once they have that equipment they would be able to receive those particular signals without any subscription fee.

2018             THE CHAIRPERSON:  And they don't have to pay you and get into contact with you or anything.  They just buy a Bell ExpressVu blackbox and antenna, install it and they can receive the local over the air station on that system?

2019             MR. SMITH:  At a very high level, Mr. Chairman, that is the concept.

2020             THE CHAIRPERSON:  Well, I am interested in the details, not the high level.

2021             Does that consumer then have to deal with Bell and are you going to make a sales pitch to sign them on, et cetera?

2022             Is that the idea?

2023             MR. SMITH:  There is a relationship with Bell for a number of different reasons.  One is because they would need reception equipment which is unique to the Bell ExpressVu platform.  So they would need a relationship with us for that.

2024             The other aspect is that we would wish to make available only the signals which that customer should receive locally.  So we would need to have a relationship to know where the customer lives in order to make sure they receive the signals that they are entitled to.

2025             But apart from that, there will be no subscription fee, Mr. Chairman.

2026             We think it is a powerful concept and we have engaged discussions with the broadcasters concerned and most of the broadcasters have indicated interest, although we haven't concluded any arrangements yet.  Obviously our ability to ‑‑

2027             THE CHAIRPERSON:  Then the next step for a broadcaster wanting to do that would be to come to us and say rather than forcing us to convert by 2011, I am going to use Freesat and distribute my signal that way?

2028             MR. SMITH:  Yes.  I think we are giving the broadcasters an alternative way to satisfy their obligations under the Act, which they would have to come to the Commission and seek your approval.

2029             But I must stress that the whole concept is an exciting one, but it does depend upon, you know, the outcome of negotiations between us and the broadcasters.  It isn't free to the broadcasters to provide this service.

2030             THE CHAIRPERSON:  And probably us, too, because we would have to say that we consider you a conventional broadcaster even though you don't do any over the air distribution any more; you are doing it exclusively via ExpressVu.

2031             MR. SMITH:  Yes, that is correct.

2032             THE CHAIRPERSON:  All right.  Thank you for that information.

2033             Now back to your proposal.  Let's start with beginning with your basic package.

2034             I notice the basic package today you say "the local station and each major group operating on a national basis and in 9(1)(h)".

2035             What happened to the educational broadcasters, the provincial ones?

2036             MR. SMITH:  We feel that the Commission need only, if you like, regulate the minimum contents of the basic package and the proposal we have of one each of the national and regional networks, plus the 9(1)(h), we feel is an acceptable minimum.

2037             The reality, Mr. Chairman, is that we would expect to carry many other services in basic and that could include some of the educational services.  But we don't think it is necessary for the Commission to regulate that the educational services must be contained within basic.

2038             Chris, can I ask you to expand upon that?

2039             THE CHAIRPERSON:  But when you say we would most of them, that implies you might not carry all of them.

2040             MR. FRANK:  At the present time, Mr. Chairman, the educational services are not a required carriage for ExpressVu, yet we carry all of them from coast to coast, and we have done since the inception of our service.

2041             THE CHAIRPERSON:  Well, in that case, if you do it anyway why couldn't it be part of your basic package?

2042             MR. SMITH:  I think, Mr. Chairman, we would recommend that you rely on market forces because clearly they are achieving the objective today, which was I think Mirko's second principle.

2043             THE CHAIRPERSON:  I'm sorry?

2044             MR. SMITH:  Our recommendation is that market forces are already causing us as a distributor to carry those services, so we recommend that the Commission does not need to regulate that they must be contained within basic because we already carry them, despite the fact that they are not must carries under the current rules.

2045             THE CHAIRPERSON:  And each group operating on a national basis, that I assume is code for CTV, Global and City?

2046             MR. SMITH:  Chris, can you expand on that?

2047             THE CHAIRPERSON:  And CBC of course.

2048             MR. FRANK:  Yes.  It would be CBC, Radio‑Canada, CTV, their two networks, TVA and Rogers City, that's correct.

2049             THE CHAIRPERSON:  TVA is considered national by you, is it?  That was my question.

2050             MR. FRANK:  I believe it is considered national, yes, sir.

2051             THE CHAIRPERSON:  Okay.  You heard yesterday CBC here complaining bitterly that for instance people in Québec City do not ‑‑ the Québec City signal is not carried by I think it was you.  Was it you?  Was it you they were talking about?  And the Gatineau signal was not available on DTH.

2052             When you say on a national, you are including CBC and CBC French.

2053             Would that mean that one station for all of Québec or would you have more than one station?  How does this work?

2054             MR. FRANK:  Currently, we have two stations in Quebec, one from Quebec City and one from Montreal.  When we added the Quebec City station, we discussed at length with the CBC which station they would like and they chose overwhelmingly Quebec City.

2055             Now, from coast to coast we carry six Radio‑Canada owned and operated stations:  one from Moncton to serve L'Acadie; two from Quebec, as we have just talked about; one from Manitoba, Winnipeg; one from Alberta, Edmonton; and one from British Columbia, Vancouver.

2056             So we carry six owned and operated Radio‑Canada service.

2057             We also carry other, within Quebec, affiliates of the CBC.  Radio‑Canada gets more local stations than any other French language station group on our service.

2058             THE CHAIRPERSON:  Okay.  And you say "the service of at least one local affiliate of each of the main station groups".

2059             If I look at that literally, that could mean that you are carrying Global from Toronto but you don't have to carry it from Winnipeg, from Edmonton or Vancouver.  Yet, you know, the news from Toronto may not be what the people in Edmonton want to see.

2060             MR. FRANK:  Currently, sir, we carry nine Global affiliates from coast to coast.  As Gary said, a combination of negotiations with the Canadian Association of Broadcasters and our own sense of time zone sensitive local and regional television distribution has led us to carry those nine.

2061             So what we are talking about is the minimum, the minimum requirement.  I think you can expect us to exceed that minimum requirement, as we have done since the inception of our service, by quite some distance.

2062             THE CHAIRPERSON:  So the reason why you don't want to put it in this is really for negotiating purposes.  You feel if you are obliged to carry them, then you are in a disadvantage in your negotiations.

2063             Is that it?

2064             MR. SMITH:  If I can just interject here, Chris, one of the critical reasons for this is because of the growth of HD services, is that satellite technology is not appropriate for carrying local, inter‑local in Canada.

2065             Physically, as I explained in my opening statement, we would have to carry a significantly larger number of services than we do today.  Now, that situation exists in both SD and in high definition.

2066             When you look at high definition, we would be unable to carry high definition services to the same extent we carry standard definition services and we were proposing a basic package which provided both.

2067             The reality is, as you can see from our current packaging, we do carry many more than just one signal from each of the national networks in standard definition, but in high definition I think our written submission was that we expect to carry two, one east, one west, and we believe that the regulation should be a requirement for one only.

2068             MR. FRANK:  If I can just add to that, Mr. Chairman, your question about our negotiations with the CAB, I would note for the record that a cornerstone of the existing or last deal that we did with the CAB was equitable treatment of all of the station groups, and we have attempted to do that.

2069             We have, for instance, nine Global signals, nine CTV signals, nine CBC.  And as you go down the list, there is equitable treatment based on size and reach.

2070             THE CHAIRPERSON:  Sorry, I'm getting confused here.  Maybe you can explain to me.

2071             So basic service of at least one of each major station groups.  Now you tell me you carry nine Global and nine CTV, et cetera.

2072             I'm not an ExpressVu customer so I don't ‑‑ educate me here.

2073             If I sign up and I get the basic package, would I get automatically all nine or would I get one and I would have to pay for the additional eight?

2074             MR. FRANK:  At the present time, you would get the ‑‑ if we are talking about Global, you would get nine, yes.  In all of the other station groups there are similar equitable numbers.

2075             So we do provide multiple variants at this point all across the country.

2076             THE CHAIRPERSON:  As part of your basic package?

2077             MR. FRANK:  As part of our basic package.

2078             THE CHAIRPERSON:  And you are proposing in future to do less?

2079             MR. SMITH:  Not necessarily, Mr. Chairman.  I think we have to distinguish between what we actually do as a result of both regulation and market forces and consumer demand and the proposed regulation.

2080             Our proposal for what should be regulated, minimum content of a basic package, is different to what we currently carry.  I don't expect in the near term to be changing our current packaging whereby we do make available many more than one signal per network group across Canada.

2081             THE CHAIRPERSON:  But as part of the obligation, you want the obligation to have only one per group?

2082             MR. SMITH:  That's correct.  It particularly works in high definition.

2083             THE CHAIRPERSON:  Not per group.  Not per group, but per province as some of the interveners have suggested.

2084             MR. SMITH:  No.  Correct.  It is, for example, per group, per time zone for example in standard definition is what we effectively currently do.  We actually go further than that, but we couldn't do that in high definition.  The economics simply don't work.

2085             THE CHAIRPERSON:  Okay.

2086             The second issue, the whole issue of guaranteed access for specialty and pay services, if I understand it, you basically think that is not needed any more?

2087             MR. SMITH:  Correct.  We think that the existing regulatory environment was created back in 1993 when there were many, many fewer Canadian services than there are today.

2088             In fact, ExpressVu has been at the forefront of helping those services launch in the digital world.  Back in 1998 we created the digital platform and we have been launching many Canadian specialty services and other services since then.

2089             We think the market has matured significantly.   There are 400 or 500 services available on our platform and also on some of our competitors' platforms.  These businesses, these broadcasters have created good brand recognition amongst consumers.  They have created, you know, good viewing figures and we don't think that they need the protection of the must carry anymore.

2090             THE CHAIRPERSON:  And so if we granted your wish how would it change your offering?

2091             MR. SMITH:  In the short term I don't think it would change it very much at all, Mr. Chairman.  I think ‑‑ you asked our colleagues from Rogers yesterday about whether there should be ‑‑ I think you were talking about transition arrangements or something.  And I think that our position on that would be that we would think it would be sensible for the Commission to signal by giving a notice period of perhaps two or three years for the must carry status of the existing channels to be withdrawn and the channels would then have to stand on their own feet.

2092             But in the short term I think that, you know, our packaging wouldn't change and I think that all the time the services continue to be successful and deliver good viewing figures then they will continue to be part of the line up as they are today.

2093             THE CHAIRPERSON:  And in future I guess you have suggested that we do not create any new services that would have guaranteed service.  I mean what I discussed with Rogers yesterday was, you know, whether you basically sort of give people the leg up or start up to the new service, et cetera.  It has to establish itself, et cetera.

2094             So it would have guaranteed service for the extent of its first licence term after which it will be in the same position as everybody else?

2095             MR. SMITH:  That is our position I would like to ask Mirko to expand upon.

2096             MR. BIBIC:  Well, I'll turn it back to Gary in a second.  He can talk about the business issues surrounding a proposal like that.

2097             From my own regulatory perspective and this notion of protecting new services ‑‑ brand new, protected and in some regulated industries, my experience has been that those who receive regulatory protection don't ultimately like to grow up and then when it's time to become an adult they throw tantrums.  And it hasn't ‑‑ it's not uncommon for regulators to accede to those requests at a certain point in time.

2098             So if we have a seven‑year licence term, even with no extensions that's a fairly long time and close to the shelf life of a regulatory framework, frankly.  And then there is always the risk of an extension and I don't think the Commission can guarantee that there wouldn't be any.  So you can have an end result with a fairly constrictive regulatory framework where practically everything becomes a guaranteed access.

2099             Fundamentally, we believe that if a new service is to be launched it should succeed or fail on its own merits, and there is absolutely nothing wrong with that.  Of course, I wholly subscribe to Gary's viewpoint about a transition period for those who currently have must carry status and we shouldn't lose sight of the fact that ultimately the preponderance role which we support would provide a measure of protection as well.

2100             THE CHAIRPERSON:  But I mean, as you know, guaranteed carriage doesn't come for free.  It is coupled with higher Canadian content and higher CPE expenditure requirements, et cetera, which takes us to the next point of genre protection which you say, "Let's let go of it".

2101             So how do you see us getting from where we are now to this new world that you are propositioning now of no guaranteed access and no genre protection between Canadian channels?  I mean how do we put them all on the same level of obligations?

2102             MR. SMITH:  Well, I think we liked Rogers' proposal yesterday that this is done by maintaining genres although it will be perhaps wider genres.  And Rogers' proposals yesterday of, I think, five genres would be something that we would support.

2103             We feel that if the level of Cancon obligations, CPE per genre is constant and is in fact created by the Commission to be an average of the services which currently occupy that genre both in must carry status and in non‑must carry status, then the Canadian content and CPE obligations of the industry remain on average constant although you may get some flow from one broadcaster to another and you get a transition period of perhaps three years for the industry to adjust to that new regime.

2104             THE CHAIRPERSON:  Put some flesh on the bones for me if we establish these four genres that Rogers talked about, say lifestyle.

2105             MR. SMITH:  Yes.

2106             THE CHAIRPERSON:  You have a Category 1.  We in fact (0930@5:13) have Category 2 here.

2107             MR. SMITH:  Yes.

2108             THE CHAIRPERSON:  They have totally different content obligations and CPE obligations.  How do they harmonize the two?  Say we give them a five‑year period or whatever and then at the end of that what happens?

2109             MR. SMITH:  Well, I think the Commission would look at those services today and would work out what the CPE and Cancon obligations would be if the Cancon obligations were to be harmonized across all those players even though at the moment they have a discrepancy.

2110             THE CHAIRPERSON:  So if one is 15 and the other one is 16 we bring them both to (0930@5:44); that's your suggestion?

2111             MR. SMITH:  Well, you would look and take into account the number of services with the different obligations but yes.  And then the Commission would signal through the results of this hearing to those broadcasters that in three years' time, say in 2011 or 2012, that will be the obligations of everybody in that market without must carry ‑‑ those without must carry status would have lower obligations.  Those ‑‑ sorry ‑‑ those losing must carry status would lose some obligation.

2112             Those currently not without must carry status would actually have a slightly higher obligation going forward but it would create a truly competitive market, which is where this industry needs to take these broadcasters.

2113             THE CHAIRPERSON:  And what do the Cat 2s get in return for increasing their Canadian content and their CPE?

2114             MR. SMITH:  Well, we would also support the proposal that genre protection is removed so that these services can compete more effectively with each other and they can morph their services into other parts of the same genre or perhaps even into other genres as we discussed yesterday.

2115             We do feel, though, that if the services wish to morph outside their existing genre or morph so that that they become a service which serves two genres then the proposal yesterday that this service should attract the Cancon and CPE obligations of the higher genre would be appropriate.

2116             THE CHAIRPERSON:  And genre protection vis‑à‑vis foreign services?

2117             MR. SMITH:  We believe it should be retained.

2118             THE CHAIRPERSON:  In its present form?

2119             MR. SMITH:  Yes, we think that the ‑‑

2120             THE CHAIRPERSON:  So basically no duplication test rather than what Rogers suggested yesterday which was a viability test?

2121             MR. SMITH:  Yes, we think the current genre protection regime with regard to the presence of foreign services into the Canadian market ‑‑ it works quite well and it can be retained.  It needs to be done on the sort of specific basis that it is done today and particularly if you go to the wider genre definitions that Rogers were proposing yesterday then looking at it on a genre basis is meaningless because there is so many services in each genre.

2122             THE CHAIRPERSON:  That's exactly where I was going.  I buy your idea we have broad genres.  We harmonize everybody.  Now comes a foreigner and wants to come and wants to have permission (0930@8:03) to be carried here by a BDU.  So how do I relax the genre protection with regard to a foreign service; the present one, in a world of these broad concepts rather than the specific genres that we have now?

2123             MR. SMITH:  Well, can I ask my colleagues to contribute here?

2124             David.

2125             MR. ELDER:  I think the problem, Mr. Chairman, is the U.S. doesn't really follow Canadian genres.  So you are in ‑‑ whatever way you classify it you are going to be in a position that on a case‑by‑case basis you are going to have to assess any given U.S. service against a Canadian service and, really, the test would be whether there is material overlap between the services.

2126             You would look at the genre programming, type of program and the size of the audience, scheduling; a whole range of factors, more or less what you do today.  But I don't see a way out of that.  Whatever genres we put in place the U.S. is not going to respect them and they are going to put together services as they please.

2127             THE CHAIRPERSON:  And every time you say case by case I am sort of putting myself in the position of an applicant and I have no idea of whether they are going to approve it or not because there are no rules.  This is going to be done case by case.

2128             Don't we owe it to the industry to give them some predictability as to what will be the rules, how we are going to judge an application?  If I say, "Yes, it will be done on a case by case" ‑‑ we have this big genre called lifestyle.  Well, we will look at ‑‑ once you come forward with a specific channel we will look at whether this is in effect a clean conflict or not.  It's on a case‑by‑case basis, come forward, give it a whirl.  That's basically what you are saying.

2129             MR. ELDER:  Well, yes and no.  I don't think it's completely open ended and we certainly, as much as anybody, appreciate certainty.  But I'm just not sure how far you can go here given the realities of the marketplace that's between Canada and the U.S.

2130             So what you can give people is your test, is the approach that what you will take.  And so as people are coming forward with new services if they want to get a new U.S. service authorized for distribution in Canada they have some idea of the tests that they have to meet and they will be looking around at other existing Canadian services to see whether there is material overlap.

2131             MR. SMITH:  Could I just add to that, because I think from a business perspective any business owner looking to launch a new service in the Canadian market they are going to be highly, highly focused on the services that they are going to be competing with most closely.

2132             So most of the analysis that the Commission would need to do in this case would have to have been done by the applicant anyway to find, you know, a business justification for entering the market.  And they will be well prepared to answer the Commission's questions in respect of services that they would see them competing with.

2133             THE CHAIRPERSON:  Oh, I'm sure they are going to make wonderful presentations and elaborate arguments.  It's me trying to make a decision and trying to make it consistent and trying to indicate a rule or a line that we are raising (0930@11:06) of the following for the industry.  When you have broad categories such as suggested by Rogers yesterday I think it's not going to be easy at all.

2134             MR. SMITH:  I think ‑‑ Mr. Chairman, I think the broad categorization we have to bear in mind, but the only real reason for the genre categories to be retained is to maintain a set of CPE and Cancon obligations by genre.  So assuming that the genre ‑‑ sorry ‑‑ the Cancon and CPE obligation for say drama are going to be different to news then you need to maintain genres.  But that's the only reason for the genres.  The interruption of foreign services would need to be done as a test on a case‑by‑case basis and the genres don't really help that at all.  They don't have any bearing.

2135             THE CHAIRPERSON:  And how do you square this with the point you made before, with the ability to morph and having no genre protection between the Canadian services?  Are these foreign services, if we allow them in, limited to their genre or if they try to morph and change do they have to reapply to us?

2136             MR. SMITH:  I will invite my colleague to add to this answer but I think that the genre ‑‑ sorry, the licence conditions associated with foreign services would need to be specific to that service and licence the service for a particular purpose and the use of the genres again wouldn't help because they would be much, much wider than the Commission would want to define the permissions of that service to operate.

2137             THE CHAIRPERSON:  So while we allow Canadians to morph foreigners are constrained to the genre in which they apply?

2138             MR. FRANK:  Mr. Chair, I'm not sure that that's practical.  History has taught us that American stations morph without consultation to their Canadian clients ‑‑

2139             THE CHAIRPERSON:  Hence my question.

2140             MR. FRANK:  ‑‑ or the CRTC.  So I think the underlying principle here is that we are promoting or we are advocating competition within the Canadian programming industry with a very, very strict eye on a distinct Canadian rights market.

2141             So foreign services that come into Canada where there is overlap or significant potential competition with Canadian services presumably would not pass the Commission's test.  And their obligations, as we see it too in respect of rights, exclusive rights, if American companies have exclusive rights then that will block Canadian companies from accessing foreign‑produced programming, so not good for the Canadian market; inconsistent with the principle we are advocating.

2142             THE CHAIRPERSON:  But you haven't answered my question.  I mean the issue is you have advocated a relaxation of genre for Canadian channels.  I understand that.  You want to have all genre categories along the lines of what Rogers has suggested.

2143             But now when it comes to foreign services who, as you just said, morph very easily, et cetera, do we apply the same genre test or if not ‑‑ and assume somebody is fine.  You say, "Yes, you can come in and we don't see you conflicting with anything there."  But then being American they change the genre and at that point in time we basically say, "Well, too bad.  Now, you are competing head on with whatever Canadian specialty channel there is.  That's too bad.  You are in; you are in."  Now, surely that's not what you are advocating.

2144             So we have to ‑‑ that's why I am trying to figure out how you deal with foreign channels which are let in under your test, this present one or a future one, because essentially they are not competing with an existing genre but they then change the genre.  Presumably, you want some protection against that or do we just say, "Well, the Canadians have been there before.  They are established.  Let them take on whoever comes"?

2145             MR. SMITH:  Mr. Chairman, you know, it's a tough, tough question because, you know, Bell Canada doesn't want to keep out foreign services which are genuinely going to add value to the Canadian consumer experience and the system isn't intended to keep them out entirely.  We need to protect Canadian rights and Canadian broadcasters' interest to the greatest possible extent but we have to do in ways that work.

2146             Bell's position is that the use of genres in the future, we feel, does really only have applicability to the issue of Cancon and CPE and unless you were to go in the opposite direction and narrow the genres really tightly and then enforce them for foreign services, then the use of genres is only relative to Cancon and CPE applications.

2147             The foreign service issue is a different issue.  It means that the licence conditions associated with the foreign service being licensed for distribution in Canada need to contain ‑‑ need to limit that service.  The question then becomes what are the consequences when that service steps outside its boundaries and I think that is an issue that we are happy to take away and perhaps address in reply.

2148             THE CHAIRPERSON:  Well, I remind you that Rogers yesterday ‑‑ I mean I questioned him on this point ‑‑ suggested that for foreign service the existing genre of protection stays in place.  Their whole idea of broad categories only applied between Canadians. 

2149             Mr. Rogers quite categorically said:  No, for foreigners, the present system just works fine, unless I misunderstood him.  So maybe you want to take that same position. 

2150             As you know, there will be an ability for you to come back but I think you should expound on this in your further submission because this is going to be a big issue:  Foreigners morphing genres, how do we treat them under your revised system.

2151             MR. SMITH:  Okay, we will take that and respond in reply, Mr. Chairman.

2152             THE CHAIRPERSON:  Okay.  Fee‑for‑carriage, I gather you are great enthusiasts of it?

2153             MR. SMITH:  I am sorry, Mr. Chairman?

2154             THE CHAIRPERSON:  Fee‑for‑carriage, I was making a joke, I said you are full of enthusiasm.

‑‑‑ Laughter / Rires

2155             MR. SMITH:  I don't think it is a laughing matter, Mr. Chairman.

2156             THE CHAIRPERSON:  The discussion we had yesterday with Rogers, et cetera, as you know, and I have said it publicly and I will repeat it here, our whole system is built really around the conventional broadcasters, who we consider the cornerstone, and we impose on them local content requirement, drama for protection and also CPE exposure, whatever you want.

2157             It has worked very well in the past but their business model is becoming increasingly under challenge and they have made ‑‑ and you have seen their submission ‑‑ an elaborate plea for a fee‑for‑carriage, saying that:  In effect, we provide content that you the BDUs want, that the customer wants, and you are offering ‑‑ you know, people don't buy your offering just in order to get specialty channels, they also get it to get a clear, crisp conventional signal now and digital or HD in the future.  Why should we not be paid for it?  The compensation that we had in the past of advertising and income tax benefits was great when we were the principal source of providing advertising means.  Now that a lot of advertising is done differently, especially over the internet, we need an additional income source in order to maintain our traditional obligations under the Broadcasting Act.

2158             I gather you don't accept this argument and I would like you to elaborate on this.

2159             MR. SMITH:  We don't agree.  We have made the point in our written submissions and without wanting to repeat all of the statements that were made yesterday by the representatives from Rogers, we feel that the broadcasters concerned simply haven't established that there is a problem to solve here. 

2160             We look at their profitability, we look at the average profitability of distributors in Canada and we look at our own profitability, which is at the bottom end of the distributor scale, and we don't think that there is a problem.  The advertising revenues are growing, albeit slowly but they are still growing.

2161             And the broadcasters need to deal with these issues as they move into the future, just as other players in the industry are dealing with our challenges, such as we have a huge transition from standard definition into high definition which involves huge investment by our shareholders and further defers the point at which Bell ExpressVu is going to generate any cash for our shareholders, and yet, we are stepping up to the plate.  We are investing and we are investing in an extra satellite capacity to be able to carry these services.

2162             And we think the broadcasters need to evolve their business models as we are evolving ours and not come to the regulator for a regulatory fix.

2163             MR. BIBIC:  Mr. Chairman, at the risk of being controversial, I would like to address this point of local broadcasters as the cornerstone, and while I wish them the best and I hope they do well, I am personally not particularly sympathetic to the challenges they face.  We all face them and that is how it goes.

2164             I do understand the challenge you are facing.  It can't be easy to find the right balance and we struggled with that ourselves when we put together our proposal. 

2165             I think the problem is that or the difficulty is that the Act when you read it doesn't actually prescribe a particular amount of local programming as being necessary.  It also does not prescribe or state that local over‑the‑air broadcasters are entitled to a guaranteed rate of return.  So the Act is open as to how much local programming is the right amount, either in absolute terms or in relative terms vis‑à‑vis regional and national programming.

2166             So in the absence of that, you are left to make a judgment and I don't think we should necessarily subscribe to a point of view that while local broadcasters have been the cornerstone up to now and have done quite well, who knows what kind of delivery system will become the cornerstone in the future to advance the cause of Canadian expression, local, regional and national.

2167             So my point being because they have been the cornerstone and they have done quite well, they are meeting the objectives of the Act and the system has worked, I am not sure that there is a need to have fee‑for‑carriage, to stand still in order for them to meet the current requirements or even to do more.  While more would be good, I don't think it ought to be on the back of fee‑for‑carriage.

2168             THE CHAIRPERSON:  Your present service ExpressVu, if you offered it without conventional broadcasters, do you think anybody would buy it?

2169             MR. BIBIC:  I am not saying we wouldn't carry it.  I do concede that they are doing a good job.

2170             THE CHAIRPERSON:  That is what I mean, they are an essential part of the broadcasting system.  The appeal of ExpressVu or Star Choice or Rogers Cable or whatever is that they deliver the whole gamut and you pay for part of the gamut and not the other. 

2171             That is the argument.  If you think that argument is wrong, I am just appealing it, that is what I am being told by the conventional broadcasters.

2172             MR. BIBIC:  What I am challenging is the link.  They are an important component of the broadcasting system and of course we carry them and of course they are watched.

2173             But we are meeting the objectives of the Act currently with the programming commitments that they have and that they step up to and that they have the means to deliver, and there are challenges, and we all face challenges, and there are ways around those challenges where you need innovation and creativity. 

2174             I am challenging the next step in the logic, which is, well, we are struggling, and therefore, fee‑for‑carriage. 

2175             I mean if I take CBC's submission from yesterday, anytime there is a shock to the system, fee‑for‑carriage.  If there is a recession, fee‑for‑carriage.  If labour costs go up, fee‑for‑carriage.  If the programming is lousy and advertising revenues go down, fee‑for‑carriage. 

2176             I mean that can't be the solution to every single problem in the broadcasting industry.

2177             THE CHAIRPERSON:  No, but you are picking a bad example because CBC, as you know, is a not‑for‑profit organization, public broadcasters with special responsibilities, et cetera. 

2178             Let's take the CTV or Global.  As I said, I don't think anybody would subscribe to your service unless you carried those stations and so therefore, you clearly get a benefit and that is their point.  They, of course, get a benefit too because people get their signal much better, et cetera.

2179             MR. SMITH:  Mr. Chairman, you know, I would just like to remind the Commission that while we don't pay fees to the broadcasters, there isn't a fee‑for‑carriage at the moment, we incur significant costs in carrying those services. 

2180             We have to fund the entire platform and fund satellite bandwidth to carry them and these broadcasters already enjoy significant benefits.  They enjoy the benefit of simultaneous substitution, they enjoy the benefit of must‑carry status and other benefits by virtue of their status.

2181             We feel that taking into account that they really haven't demonstrated that they have a problem here because they are profitable, they are spending increasing amounts every year on U.S. programming, that this does seem to be that they are crying wolf and coming after the distribution community for a regulatory fix that just isn't appropriate and the distribution industry can't afford it either.

2182             THE CHAIRPERSON:  The line of questioning I had yesterday with Rogers basically said it is just a money grab and what does the customer get more by a fee‑for‑carriage.  My point was, you know, you are assuming that the fee‑for‑carriage is without strings, it may very well be with strings.

2183             Would that, in your view, make the fee‑for‑carriage more acceptable?

2184             MR. SMITH:  No, Mr. Chairman.  I think that our objections to the fee‑for‑carriage are fundamental and we just don't feel is appropriate.

2185             If the broadcasters are given any new source of revenue, wherever it may come from, we would expect the Commission to take a view as to whether that new source of revenue should be attached to other obligations such as increased CPE or increased Cancon.

2186             So I would certainly divorce the ‑‑ you know, I would have no objection to the Commission's suggestion that if there is an increase in revenue sources for the conventional broadcasters that I would expect the Commission to review their Cancon and CPE obligations.  That would be the sensible thing to do but we still don't agree for fee‑for‑carriage, I am afraid.

2187             THE CHAIRPERSON:  But yet you feel as a distribution you are entitled to more income by being allowed to advertise?

2188             MR. SMITH:  I think there is advertising inventory in the market which is being under‑utilized right now, so I think there is an opportunity for the industry to benefit.  It is a very modest change.

2189             THE CHAIRPERSON:  Yes, but us granting you that, if we accede to your wishes will undoubtedly mean new streams of revenue for you?

2190             MR. SMITH:  I don't disagree with the Chairman, of course, but I think the key factor is that it is a very small source of revenue.  We have estimated the total value of the advertising inventory that we would gain access to if the Commission accedes to our request to be about $20 million per annum.  Now, $20 million per annum is tiny compared to the size of the advertising pie accessed by the OTA broadcasters.

2191             THE CHAIRPERSON:  Twenty million, that includes both local avails, community channels and everything?

2192             MR. SMITH:  Well, don't forget, for ExpressVu we really only have the local avails on the U.S. channels.  The advertising inventory that Rogers were referring to yesterday, things like VoD, VoD is not a satellite capability and we don't have community channels of our own.

2193             THE CHAIRPERSON:  What about the targeted advertising that Rogers was talking about, you know, doing specific inserts targeted ‑‑ you know who your customers are, you must have more or less the same database that Rogers has as to customers, what they view, et cetera, so the ability to insert different ads in different programs in order to target different audiences.

2194             Are you technically capable of doing it?  Rogers claims they are. 

2195             Do you see this is a potential new source of additional income that could be shared with broadcasters?

2196             MR. SMITH:  Well, I always have to remember though, I have multiple hats sitting in front of you, Mr. Chairman. 

2197             From the point of view of our ExpressVu satellite business, then the technology does not lend itself to the same form of dynamic ad insertion that Rogers was describing yesterday.

2198             Obviously, our wireline interests in the Aliant TV service would have that capability.  I think it is an attractive opportunity and I would encourage the Commission to certainly be very flexible and not introduce any barriers that would prevent the introduction of such technology because it is a good thing, it does increase the value of advertising inventory where it is available.

2199             On the ExpressVu platform we don't have that option.  The example that was used yesterday, I think it was a car manufacturer distributing an advertisement for a car in one locality and a truck in a different locality.  The satellite distribution carries one signal with the adverts embedded in the stream and practicalities mean that it is not really feasible to divide the stream up and have different versions of the ad every 15 minutes.

2200             THE CHAIRPERSON:  But on your IPTV site where Aliant is quite successful ‑‑

2201             MR. SMITH:  It is very feasible and I would like to take advantage of that opportunity as the technology develops further. 

2202             I would agree with Rogers, I think it is going to take some time to develop and it is not going to ‑‑ the first versions of this technology are going to be very simple.  They are going to have one version of the ad in the west and one version of the ad in the east. 

2203             But ultimately it could get down to the stage where you have 20 different versions of a particular advert and it is targeted by household in the way that I think Mike Lee was describing yesterday.

2204             THE CHAIRPERSON:  And you share Rogers' view that this is one way to keep the advertising in the broadcasting system rather than having it migrate to the internet which obviously is much easier to target audiences?

2205             MR. SMITH:  Yes.  One of the reasons for the migration of advertising away from conventional television is because conventional television is only targeted to a certain extent and some of the alternative advertising methodologies that exist, particularly advertising on the Web, are much more highly targeted.  So advertisers can get better bang for their buck by putting their adverts on different platforms.

2206             If we can increase the effectiveness of advertising on the television generally, then it is a good thing.  It retains advertising value in the industry and we would encourage it.

2207             THE CHAIRPERSON:  Okay.  CBC yesterday ‑‑ at least that's how I understood them ‑‑ proposed a broad bargain:  give us fee for carriage and let the distributors have advertising, so a quid pro quo.

2208             Now, we can talk about the amount of fee and the amount of advertising that the BDUs could do and where and on what programming, et cetera, but do you see this as sort of a logical way of balancing things out and having a win‑win situation?

2209             MR. SMITH:  No.  I think for our business, the majority of our customers being on ExpressVu and we don't have access to many of those advertising sources, it isn't a solution and it doesn't change the fact that we fundamentally disagree with the cause, the problem that is perceived to cause fee for carriage.  We don't think fee for carriage is the right solution.

2210             THE CHAIRPERSON:  Okay.  And on distant signals, you just today said something categorically different from what Rogers said yesterday.  Rogers said distant signal is a DTH problem.  We pay for distant signals.

2211             Are you telling me you are paying for distant signals, too?

2212             MR. SMITH:  Yes.  We have a benefits package, and I will invite Chris to expand upon this.

2213             We have a benefits package that was negotiated with the Canadian Association of Broadcasters which provides some cash and services, and the combined value of that is 43 cents per subscriber per month.

2214             So that is the cost to us of carrying distant signals.

2215             I just wanted to correct Rogers, who are probably not particularly familiar with the commercial arrangements we have.

2216             THE CHAIRPERSON:  Is that more or less than Rogers is paying?

2217             MR. SMITH:  I would have to go back and study Rogers' testimony I'm afraid.

2218             Something I wish to point out, Mr. Chairman, is that the negotiations that have taken place in the past have been between ExpressVu and the CAB and one of the reasons for that, and one of the reasons ‑‑ and for the same reason we would encourage the Commission to ask us to go back to the negotiation table with the CAB and the broadcasters is that the solutions to this are technology specific.

2219             Rogers made the point yesterday, quite eloquently, that they have the opportunity to discuss with the broadcasters the use of their VOD platform to carry I think they called it companion channels to thereby avoid the distant signal issue.

2220             Clearly satellite doesn't have that capability.  We have different alternatives and in fact we have negotiated those in the past.  And therefore that makes the solution to this problem, such as it is, broadcaster specific ‑‑ sorry, distributor specific, and we think therefore that is best dealt with in a negotiated way rather than by the Commission trying to mandate one solution which is not going to work for maybe some or all of the distributors concerned.

2221             THE CHAIRPERSON:  I entirely agree with you.  If you can work it out and if we can stay out of it, that's fine by me.

‑‑‑ Laughter / Rires

2222             THE CHAIRPERSON:  The CAB will be here and we will be talking to them about this very issue, et cetera.

2223             But, as I say, this was news to me when I heard you this morning saying that you are actually paying.

2224             MR. SMITH:  Yes.

2225             THE CHAIRPERSON:  This is an existing agreement?

2226             MR. SMITH:  Yes.  Could I ask Chris to perhaps ‑‑

2227             THE CHAIRPERSON:  Are all existing carriers ‑‑ do all national stations benefit from this?

2228             MR. SMITH:  Could I ask Chris to give us some history to this because I think it might be useful for the Commission.

2229             Chris...?

2230             MR. FRANK:  The agreement that you speak of, Mr. Chairman, is expired but it is still in effect and we are awaiting the opportunity to sit down and renegotiate this deal.

2231             As Gary said, we led the past negotiations and drove to a solution with the CAB.  It is the second comprehensive arrangement for distant signals that we have entered into during our history.  I think that we have been forthright and absolutely in earnest in these negotiations, and I think that the solutions that we have come up with are good for both sides.

2232             Ideal for both sides?  Probably not.  But in the ebb and flow of discussion, a reasonable deal.

2233             The issue of payment, the last deal required us to add some 25 new services.  That is approximately 2‑1/2 transponders.  Those are transponders that we cleared off specifically for these stations, and I think both parties agree that we wouldn't ordinarily carry those services.  It included new services, stations from large groups and the majority from small, independent groups, which at the time the Commission was very, very concerned about.

2234             A companion piece of the deal set up a fund for local programming for those small independent services.

2235             So if you look at the costs associated with those specific transponders, which are dedicated to these incremental channels, if you look at the backhaul costs associated, the uplinking and encoding costs, you drive to the 43 cents that Gary was talking about.

2236             THE CHAIRPERSON:  Is this agreement only between you and the CAB or does it also include Star Choice?

2237             MR. FRANK:  The deal was originally struck, sir, between ExpressVu and the CAB.  It came to the CRTC for approval and it was modified slightly by the CRTC.  As a result, it was an arrangement that by regulatory requirement affected both DTH companies.

2238             THE CHAIRPERSON:  Okay.  Back to distant signal, not distant signal, fee for carriage.  I know your dislike for it, and I also read your submission that you don't believe much in the studies, the economic studies done by CTV and Global.

2239             What would happen, do you think, if we did propose a fee for carriage?  What would be the impact for ExpressVu?

2240             Let's say for argument sake, take any figure that has been floating around, 50 cents per signal, et cetera.

2241             MR. SMITH:  Well, I would caveat my answer by hoping that we are talking about hypothetical situations here.  But given that, if we were to be asked to pay a fee for carriage of the local services, we would need to pass that on to our subscribers in some form.

2242             The profitability of ExpressVu is not high.  As I have mentioned in my opening statement, we still haven't reached the stage of being cash flow positive even after 10 years.  So we have less capability to absorb any price increase or costs incurred upon us compared to any other distributor.

2243             We also don't have any offsetting interests in any broadcaster groups.  Rogers yesterday, they have the Citytv services which would benefit from this, so they have some degree of offset whereas we have no such offset in ExpressVu.

2244             So we would have no choice but to pass this on to our subscribers, and we would think very long and hard about how to do that.

2245             I wanted to take an opportunity to expand upon some of the economic issues that Rogers were explaining yesterday, because if the fee were to be imposed at, say, $1.00, the total cost to ExpressVu was $1.00, that doesn't mean that we would only pass $1.00 through to customers.

2246             I wanted to explain why that is, because it is quite important.  When we undertake a price increase for any reason, we expect a certain number of customers to churn from the platform, to leave the platform, and we also expect some customers to choose to subscribe to less programming of a discretionary nature.  So they will spin down and consume less specialty services.

2247             We also expect to have to give some customers what we call satisfaction credits.  They phone up, they complain about the price increase and we manage to persuade them to stay as a customer by perhaps giving them a small discount for a period of time.

2248             When you take into account the amount of the price increase times the number of customers that it applies to, but then take off the loss of revenue associated with churned customers, customers that you may be giving satisfaction credits to and customers that actually choose to spin down and buy less, the net effect of the price increase is significantly less than the actual headline price increase.

2249             Now, to reinforce this point, if you have looked at ExpressVu's financial results for the last two or three years, you will see that we have successfully grown our average revenue per user, our ARPU, every year, but the majority of that ‑‑ and we have also, if you have been following the market, you have seen that we have applied price increases.  To an uninformed observer it would look like we generated those ARPU increases from the price increases.

2250             The reality is most of the ARPU increases that we generated have come from selling more programming to customers.  We have been very successful about persuading customers to buy HD services and to buy movie services and all of the other discretionary theme packs we carry.  That has accounted for the majority of our ARPU increase, and the price increases we have applied have only accounted for maybe a third of it.

2251             Now, that means that if we were to have a fee of, in my example, $1.00 applied by the Commission for fee for carriage, and then it is likely that we would have to look to a larger number than that to pass on to subscribers just to keep ourselves in the same position.

2252             I'm sure that given the opportunity, Rogers and the other distributors will tell you exactly the same.  This is not unique to ExpressVu.  This is just the economics of a distribution business.

2253             THE CHAIRPERSON:  I understand the economics.  I'm not too sure I think the consumer behaviour will necessarily be what you predict it is.

2254             I mean, you must have had price increases in the past and you must have churn rates and seen what has happened when you raised your fees in the past.

2255             MR. SMITH:  We very much ‑‑

2256             THE CHAIRPERSON:  Can you file those with us on a confidential basis?  I would like to see where ‑‑ you know, it is one thing to say if we increase by $1.00 and we pass it on to consumers, we will lose 20 per cent, et cetera.  Since you have empirical evidence in the past of what happened when you had price increases, you know, I would like to see in effect what the sensitivity of consumers is to that.

2257             MR. SMITH:  We could certainly file some information on a confidential basis with the Commission.  Obviously it is very commercially sensitive information.

2258             THE CHAIRPERSON:  Obviously on a confidential basis.

2259             MR. SMITH:  But yes, that would be possible and we can do that as part of the reply round.

2260             THE CHAIRPERSON:  Okay.  Thank you.

2261             Since I was the lead questioner for you, I think those are my key questions, but I'm sure my colleagues have a lot of other questions.

2262             Michel...?

2263             COMMISSIONER ARPIN:  Thank you very much, Mr. Chairman.

2264             While we are on the topic of distant signal, could you tell the Commission how you have arrived at 43 cents?  Yesterday we heard the number 50 cents and now you say that the real number is 43 cents.

2265             Is it a matter of negotiation or was it based on some calculation of some sort?

2266             MR. SMITH:  As Chris described, the 43 cents is the total cost to ExpressVu of a package of measures, which includes contribution to funds and expenditure on services that we provided as a result of the negotiation that took place last time with the CAB.

2267             The outcome of the current negotiation is likely to be different and I wouldn't like to prejudge what that outcome should be because there are many factors.

2268             Rogers, for example, would come to the table with companion channels on VOD.  We would come to the table with the tools that we have in our armoury to discuss with the CAB and hopefully reach a resolution.

2269             COMMISSIONER ARPIN:  But still looking forward, so what you are saying is that the 43 cents is the cost to ExpressVu.  It is not necessarily ‑‑ the 43 cents is not necessarily the money that is paid to this CAB?

2270             MR. SMITH:  No, it's a combination of funding for a fund and services which we provide.

2271             Chris, do you want to expand on that?

2272             MR. BIBIC:  I believe, Vice‑Chair, it is a per‑subscriber equivalent of the totality of the compensation we provide to the broadcasters.

2273             COMMISSIONER ARPIN:  Yes, that's what I understood.  But at the end of the day, how much money will the CAB get on a per‑subscriber basis?

2274             MR. SMITH:  I must say just before we answer that question, Mr. Commissioner, the way we think about this is we have a package of measures that adds up to several million dollars a year, and yesterday when Rogers were quoting numbers we did some back‑of‑the‑envelope calculations to get to the equivalent cost per subscriber to inform the Commission.

2275             I think we could take away the details and if the details of this arrangement aren't familiar to the Commission, we could file them as part of our reply round so that the Commission is fully informed.

2276             COMMISSIONER ARPIN:  I think if you could file them, we would appreciate it because obviously we know that you are looking to have a ‑‑ I know that parties are awaiting the outcome of this public hearing before entering into renegotiation of these agreements.

2277             Am I right?

2278             MR. SMITH:  Yes.

2279             MR. FRANK:  The key feature, Commissioner Arpin, is that the costs that we ascribe to this per‑subscriber amount are 100 per cent causally related to the arrangement we conducted with the CAB, and I think that the decision which approved it acknowledged that these were additional costs over and above what we would typically do.

2280             So we are bringing in‑kind and cash to the table to solve a problem that is difficult for both sides.

2281             If I might just for a moment correct my boss, the fund was not included in that particular calculation.  Very important to note because the fund of course is "public monies".  It comes out of our 5 per cent and it was something that we offered to provide the small local independent broadcasters with an opportunity to create new local programming so they could be more competitive in their markets.

2282             COMMISSIONER ARPIN:  But that is an existing fund to the 43 cents.

2283             MR. FRANK:  Yes, it is.  That is the operative point.

2284             COMMISSIONER ARPIN:  Now, in reading your application and your submission, particularly when I reviewed the CMRI study, I noted that one of their conclusions was that:

"The proliferation of distant out of market stations has declined significantly in English Canada..." (As read)

2285             And it goes on saying that to some extent there is no significant impact of distant signal.

2286             Now, that is a contrary view to what is said by the broadcasters who are claiming that it is a big issue.  They are unable to monetize their out of market tuning.

2287             Could you explain to me how you did arrive at a very, very different conclusion than the broadcasters are arriving at?

2288             MR. SMITH:  Well, Commissioner Arpin, we have with us today Barry Kiefl who is very, very familiar with the subject matter, so I will hand over to Barry to respond in detail.

2289             I think my analysis of this as the sort of business owner of ExpressVu is that there is actually quite strong alignment between our assessments and the broadcasters' assessments, except for a few key differences, which I have reviewed in detail with Barry and I think we can summarize for you quickly, that will highlight why we feel that we are right and they are wrong, quite frankly.

2290             Barry, over to you.

2291             MR. KIEFL:  Thanks very much, Gary.

2292             The CAB and CTV CanWest did two separate studies, Mr. Commissioner.  The first study for CTV CanWest was a study which grossly exaggerated the impact.  I think the reason why was that included in their measure of distant signal viewing was all of the old analog U.S. stations and old analog Canadian stations that allowed distribution across Canada.

2293             They came out with a number of ‑‑ before it was significantly reduced by a factor of sellout rates, their first number was over $400 million, which is roughly equivalent to about half of the total advertising revenue of CTV or CanWest.

2294             So it was a number which I couldn't understand and in fact the study didn't have any details.  It didn't explain what markets were studied, what stations were actually analyzed.  It didn't provide any information whatsoever as to how the study was conducted.

2295             The second study for CAB, also done by the same consulting firm, Armstrong Consulting, actually used a methodology that was very similar to the CMRI methodology.  It looked at just viewing of distant signals in the digital environment; that is, in DTH homes or in digital cable homes.  The previous study didn't seem to do that, the other CTV CanWest study.

2296             So that in effect the second study mirrored what was done by CMRI, by myself.

2297             The process was basically very simple.  We take all of the markets in Canada, isolate out all of the distant signal viewing in DTH and digital cable homes and then apply a revenue equivalents of that based on some factors that have been well established in the industry.

2298             The revenue equivalents, basically if you looked at the CMRI study and the CAB Armstrong study, would come out to roughly the same number.  There isn't that much of a difference.  The only real difference is that Armstrong Consulting failed to recognize that there was indeed a great deal of monetization going on in distant signal viewing.

2299             I went to the ACA, the Association of Canadian Advertisers, and to representatives of the Canadian Media Directors Council, looked at TVB data, trends in network revenue and local revenue in television business and talked to a number of individual ad agencies, a number of outside sources.

2300             I will note, by the way, that in neither of the Armstrong Consulting studies is any outside source other than the broadcasters themselves referred to.

2301             I went to the industry representatives who are responsible for buying the airtime on conventional broadcasting and they confirmed that one key element of distant signal viewing was indeed being monetized.  And that is what is called network advertising, pure network advertising.

2302             When an advertiser buys an ad in Desperate Housewives or the Super Bowl when they want to reach the entire country, they pay a network rate and that network advertising is in fact completely monetized for all intents and purposes in distant signal viewing.

2303             It doesn't matter to the advertiser or to the agency that has made the buy that a person has watched the Super Bowl on a distant signal or a local signal or watched Desperate Housewives on a distant signal or a local signal.

2304             I ran my study by Sunni Boot, who is probably the most noted advertising agency head in Canada, and she confirmed in correspondence with me that network buys of course have the entire audience in distant signal viewing.  And the ACA said something quite similar in correspondence that they shared with me.  Those viewers are being counted, credited, valued and paid for.

2305             So I think it is basically unequivocal.  It is not just my opinion; it is the information gathered from all industry sources that there has been a monetization of distant signal viewing.

2306             The question becomes I guess how much distant signal viewing ‑‑ I'm sorry if I'm going on too long here, but please cut me off if it is too long.

2307             The question becomes:  How much distant signal viewing is being monetized?

2308             I used a very low estimate of 30 per cent.  That was based on a number of different sources.  CBC have said that about 50 per cent of their advertising revenue is derived from network advertising.  Armstrong Consulting in his study done two years ago claimed that it was somewhere between 22 and 44 per cent.

2309             By sheer coincidence ‑‑ well, maybe it is not just a coincidence, CTV indicated in their submission on January 25th, before my study was filed, or the same day my study was filed, that 30 per cent ‑‑ exactly the same number that I used as a minimum ‑‑ of their revenue is derived from network advertising.

2310             I think what the difference is therefore is that the CAB have failed to recognize that there is some monetization.  And my interpretation of what they have been saying all along when they repeat in their submission and in the CTV CanWest submission that they are not monetizing, I think what they are trying to say is that the local station isn't monetizing some of this viewing, but in fact other operators ‑‑

2311             COMMISSIONER ARPIN:  So what you are saying is the network is monetizing, at least through the network sales, and that represents 30 per cent of their total ‑‑ not the monetizing, but the network sales.  It's a significant portion.

2312             So that allows you to conclude that it is marginal, it could even be positive.

2313             MR. KIEFL:  It could even be positive and in fact I think it is probably very slightly negative.  You know, my best guesstimate would be that maybe on the English side it is in the single‑digit million dollar figure and on the French side, because of the way the French broadcasters sell the Québec market, it is probably about zero.

2314             MR. SMITH:  Mr. Commissioner, I mean clearly the broadcasters have a different position, but Barry's analysis is very thorough and, as he has pointed out, he has consulted external sources which the other broadcasters haven't.  So we have a great deal of faith in Barry's position on this.

2315             But even given that, in the past settlements we have negotiated settlements when we have given the broadcasters pretty close to Barry's worst‑case in these cases, to give them benefits and give them services to compensate them for the worst case of the situation.

2316             What we would like out of this hearing is an instruction from the Commission to the parties involved in this dispute to go away and try to resolve it again, as we have done in the past, because it has worked in the past and it can work again.

2317             I just wanted to ‑‑

2318             COMMISSIONER ARPIN:  I will say that if you want to initiate negotiations right now, we don't have any problem with that.

‑‑‑ Laughter / Rires

2319             COMMISSIONER ARPIN:  We prefer negotiated settlements to a decision made by the Commission, and I'm sure the broadcasters do prefer a negotiated settlement as well.

2320             MR. SMITH:  Well, I think certainly the broadcasters have deferred entering into negotiations pending this hearing, so I think they were hoping for a regulatory fix.  But we would encourage you to avoid that and ask us to go back to the table.

2321             We do have one further suggestion relating to the negotiation, and that is that if the negotiations reach a point where we have not reached agreement, we would be happy, as one of the key distributors involved in this issue, to abide by the decision of arbitration, so effectively accept binding arbitration as an ultimate resolution to this issue, probably combined with a referral back to the Commission to ratify whatever the arbitrator decides.

2322             So the Commission gets an opportunity to comment.

2323             Mirko, do you want to expand on that point?

2324             MR. BIBIC:  I was just going to add, Mr. Vice‑Chairman, that the direction in paragraph 38 of the TV Policy decision from last year seemed to us to make good sense, which is go negotiate and here are the principles that you should take into account with respect to the negotiation.

2325             I would add what Gary added to that, simply if we can't reach an agreement through those negotiations based on these principles, let's arbitrate.

2326             MR. SMITH:  Our customers have been enjoying distant signals for 10 years and even the Chairman yesterday admitted that, you know, the Chairman likes distant signals and many of our customers do as well.

2327             So I don't think this is a case of us taking away access to distant signals.  That would be a negative for our customers.  This is all about the commercial negotiation of any compensation arrangements.

2328             COMMISSIONER ARPIN:  I understand from an earlier reply that currently your distant signals are offered on basic to all your subscribers.

2329             What will happen if they were to be offered in a package for an extra cost?  Will they still be as attractive?

2330             MR. SMITH:  Well, I think because they are currently contained within basic, the customers that enjoy those services would see that as being a negative.  We would have to take a judgment call as to how many customers would subscribe to distant signals and take into account the number of customers that would not like the change and churn or spin down as a result, and price those signals at a level which would keep us, you know, neutral.

2331             That would be unnecessary at the moment, as far as I ‑‑ it is an unnecessary encumbrance on my business model at the moment.  So I would prefer to retain the ability to keep the signals in basic.

2332             COMMISSIONER ARPIN:  In an earlier reply Mr. Frank told us that currently you are offering nine CBC, nine CTV and nine Global signals.  On the French side how many signals you are offering to TVA, TQS?  Radio‑Canada you said six already.

2333             MR. FRANK:  Yes.  It's five each for TVA and TQS to accompany the six for Radio‑Canada.

2334             I might add that these are owned and operated, owned by the individual networks.  We do carry in addition a number of affiliates to CBC, Radio‑Canada and some of the privates.

2335             COMMISSIONER ARPIN:  So those are the owned and operated?

2336             MR. FRANK:  Yes.

2337             COMMISSIONER ARPIN:  That also applies to Radio‑Canada?

2338             MR. FRANK:  Yes, it does.  We have private affiliates who operate it yes, sir.

2339             COMMISSIONER ARPIN:  On top of that you have private affiliates.

2340             Now, I noted in your ‑‑ that is something Mr. Lafrance raised yesterday when he appeared on behalf of Radio‑Canada.  I noted in your reply that while you are offering Radio‑Canada six signals from Radio‑Canada, you have none from Ontario.  You don't have one neither from Toronto nor Ottawa.

2341             MR. FRANK:  That's correct.

‑‑‑ Background noise / Bruit de fond

2342             MR. FRANK:  Somebody is sending me a coded message.  Not now, Scotty.

‑‑‑ Laughter / Rires

2343             MR. FRANK:  Radio‑Canada was very keen to get an additional service in Quebec, as I said earlier, and we consulted with Radio‑Canada and effectively took their choice of Quebec City.

2344             Now, what we have offered Radio‑Canada in the Outaouais is the opportunity for them to have a dedicated channel, and on that dedicated channel on a part‑time basis we would carry all of their local and regional programming, including news, weather and sports.

2345             This is a concept that we originated a number of years ago.  We applied to the Commission for permission to do this and the Commission embraced the idea, gave us permission.  We have been attempting to sell this idea to broadcasters because, as Gary said, we simply can't carry all of the local services coast to coast, otherwise we would become a direct to home television system which was all about local TV and not about specialty and pay.

2346             I noted the Chairman's question a little while ago about the importance of local television, and our panel has acknowledged the importance of local television.  But we need to emphasize the importance of specialty and pay as well.  We have to be competitive in the Canadian marketplace.  We don't have an infinite supply capacity and Canadians are, I think, indicating or are choosing with their wallets to buy more and more specialty and pay services.  So if we don't have a balanced service, as I said, we won't be competitive.

2347             So back to this issue of partial channels, it is a rather innovative, I think, solution, a rather elegant solution to providing local TV from coast to coast, providing at least partial channel service for local TV that we simply don't have room for.

2348             COMMISSIONER ARPIN:  The issue of capacity that you just described, will it be fixed down the road when you are going to be launching new satellites or is it...

2349             MR. SMITH:  No.  You will hear later I think from the satellite providers ‑‑ I believe Telesat are testifying at this hearing ‑‑ that Canada is in a fortunate position and has plenty of orbital locations and slots and spectrum, et cetera, for satellite distribution of television signals.  But unfortunately the economics is such that it wouldn't make sense for a business like ExpressVu or Star Choice ‑‑ I'm sure they are in the same position although they can speak for themselves ‑‑ to carry all local signals in a market like Canada.  The market is not big enough to carry the overhead of having to carry local into local on a satellite platform.

2350             Satellite businesses across the world generally become commercially viable at a scale of two or three million households, and the Canadian market just doesn't sustain that for satellite operators.

2351             So it is challenging, Mr. Commissioner, and I think what we have achieved in Canada through the good work that Chris has done over the last 10 years is we have achieved a good compromise.  You know, we carry 75 signals out of the available local market of I think it is 130 in SD.  Is that right, Chris?

2352             So we are about 50 or 60 signals we don't carry.  But across those 75 signals that we do carry, we are probably serving ‑‑ giving local content to 85 per cent of our customers because, don't forget, there is enormous customer concentration in the big urban centers.

2353             So we are already providing a substantial local service within the economic constraints of the technology that we use, and we think it is healthy for Canada to have that service that we have ended up with.

2354             COMMISSIONER ARPIN:  I have a few questions for you on satellite relay distribution licences.

2355             I heard Mr. Bibic saying in his principle one that basic service preponderance, relaxation of genre exclusivity, and then for the rest they rely increasingly on the marketplace.

2356             Are you suggesting that the Commission exempt totally or remove itself from the regulating SRDUs?

‑‑‑ Pause

2357             MR. SMITH:  My colleague tells me yes is the answer.  I'm sorry, I am not prepared on that particular question, Mr. Commissioner.

2358             COMMISSIONER ARPIN:  Well, I think if the answer is yes, there is no further questions.

‑‑‑ Laughter / Rires

2359             MR. ELDER:  Well, I think the answer was yes in that we ‑‑ the way that the technology and the marketplace has evolved, that there was competition amongst SRDUs, that there was no real problem here, there was nothing that required Commission regulation.

2360             COMMISSIONER ARPIN:  Thank you.

2361             Thank you very much, Mr. Chairman.

2362             THE CHAIRPERSON:  Thank you.

2363             One little question I forgot to ask you.

2364             In your summary pages, which I think by the way was an excellent idea of putting in your submission where you stand on everything.  On page 12 on "Community Channels" you say:

"DTH should have opportunity to provide a form of community programming."

2365             Can you elaborate on what you are hinting at here?

2366             MR. SMITH:  Yes.  Chris, who wants this one?  Chris?

2367             MR. FRANK:  The opportunity to have a Community Channel is one that we have wanted for some period of time.  It offers a tremendous marketing opportunity.  We watch our cable competitors with envy as they are able to basically push their brand through their Community Channel.

2368             It is a great opportunity so we would welcome that opportunity.

2369             In the alternative, and to your challenge of yesterday about what can we do for local programming, in the alternative you will note that cable currently spends about two points of its 5 per cent contribution to local programming to the Community Channel.

2370             We don't have that opportunity so in the alternative we would propose creating a fund for local broadcasters across the country for new incremental television programming, thereby allowing additional resources to be put into this very important part of the business.

2371             THE CHAIRPERSON:  Okay.  That I understand.  But you are not thinking of ExpressVu‑owned community channels.  When your community is the country, I don't see how you would do this.

2372             MR. FRANK:  Well, we have ideas and we were hoping that we could come out of this hearing, following the Dunbar‑Leblanc recommendation, that you would accept proposals for Community Channel for DTH, let us explain to you why it is a good idea and basically endorse the principle and then leave it up to us to fill in the blanks.

2373             THE CHAIRPERSON:  You have the technological capacity to do that?

2374             MR. FRANK:  Well, I think you are right.  At 10,000 feet, it would be a community of communities approach.

2375             THE CHAIRPERSON:  Okay.

2376             MR. FRANK:  It is a wonderful opportunity.

2377             But as I said, in the alternative, the opportunity as part of the negotiations with the broadcasters, if some of the value we might be able to bring to the table is this 2 per cent of our gross revenues into a fund, specifically earmarked for incremental new programming.

2378             THE CHAIRPERSON:  Okay.  Thank you.

2379             Len...?

2380             COMMISSIONER KATZ:  I have a number of questions, Mr. Chairman.  I'm just wondering whether you want to take a break now or just continue through?

2381             THE CHAIRPERSON:  Okay.  The consensus is we will take a 10‑minute break.  Thank you.

2382             THE SECRETARY:  Excuse me.  I would ask that if there is a representative of Allarco Entertainment in the room, if they could please come and see me.

2383             Thank you.

‑‑‑ Upon recessing at 1038 / Suspension à 1038

‑‑‑ Upon resuming at 1054 / Reprise à 1054

2384             THE CHAIRPERSON:  Okay, Len, you had a question.

2385             COMMISSIONER KATZ: Yes.  Thank you, Mr. Chairman.

2386             I just want to follow up on one item that Vice Chairman Arpin had a response to before we broke, and that was the statement that Bell's position is that the SRDU business should be deregulated because it is competition.

2387             How many competitors are there in this business?

2388             MR. FRANK:  In the SRDU business, there are two main players.  Well, one main, one very large player, Shaw.  And ExpressVu has a licence.

2389             We have a small chunk of the market.

2390             COMMISSIONER KATZ: And you are advocating that in light of that the market is sufficiently competitive to allow for no regulatory oversight or no approvals?

2391             MR. FRANK: I think we are asking for exemption, Commissioner Katz.  And presumably that would come with certain conditions.

2392             COMMISSIONER KATZ: Okay.

2393             I am going to try to follow your submissions this morning, so that we can try to flow through this.

2394             And I think this question is to Mr. Bibic. 

2395             In your principle one, you talk about the basic service.  And then later on in that section you talk about the BDUs remaining free to customize their basic package, which I guess is a basic plus.

2396             Should there be a basic and a basic plus type of philosophy?

2397             MR. SMITH: Our proposition is that we believe that the Commission could regulate that basic must include a minimum of the services we proposed but it would be up to the discretion of the distributors to add whatever services they feel are appropriate to a basic package for their customers.

2398             We feel that the distributors in Canada have demonstrated through their actions that we are capable of bringing, you know, a healthy range of different basic packages to the market.

2399             We have a very different package to Rogers, to Star Choice and to our other competitors, and we are giving consumer choice.

2400             But we are also giving customers, you know, a low‑end entry point, which works for everybody.

2401             And we have to bear in mind that customers that don't wish to pay for a television service from one of the distributors will from 2011 have, you know, crystal‑clear digital, terrestrial, over‑the‑air services to enjoy.

2402             So, you know, there is no ‑‑ we don't think there is a market requirement for a low‑end regulated basic package that is constrained to a small amount of services.

2403             COMMISSIONER KATZ: So what is the significant of a basic service if, in fact, that basic service is not a package that is available in the open market to consumers?

2404             MR. BIBIC: The philosophy, Vice Chairman Katz, is that every BDU must have a basic.  Every BDU would be free to customize its basic package as it sees fit to respond to consumer needs and respond to competition.

2405             Bud every basic package offered by every BDU would have to contain the minimum requirements imposed by the Commission which we outlined at the beginning of my portion of the opening statement.

2406             COMMISSIONER KATZ:  So if the subscriber just wanted the basic package and one multi‑channel program because they are of ethnic origin, they couldn't get that.  They would have to buy the basic, as you have defined it, and then buy from there?

2407             MR. SMITH:  I would remind the Commissioner that the distributors like ourselves and the cable companies and the other satellite cable company, we are in the business of creating packages and creating a combination of services in a basic tier and then a series of optional extras, either tiers in the old analog world or theme packs in our world, which create a wide range of offerings to suit customer demand, but also meeting the business imperatives of the distributor itself.

2408             The way that the market has evolved, we think it has created a wide range of different options for customers to buy and it works for consumers.  They voted with their wallets and with their feet by subscribing to our service and to our competitors' services.

2409             We are just not sure there is any reason for the Commission to try to shape the market any more than it is today because it is working.

2410             MR. BIBIC:  A key point ‑‑ my apologies, Vice‑Chairman Katz.  A key point to add to Gary's answer is that a very, very, very small number of Bell ExpressVu subscribers subscribe to our basic package only.  So the way we have constructed our basic package has not been a problem for our customers and in fact they have used it as the launching pad into subscribing to discretionary services as well, the vast majority of them.

2411             COMMISSIONER KATZ:  And I think that is good and I think that is healthy.  The only question I have is there are two or three choices out in the marketplace, and if this basic package becomes a basic‑plus package ‑‑ and, as we heard yesterday, the Rogers basic package today is anywhere from 39 to 63 channels depending on how you count it, I guess.  It is a bit more than just basic for the basic consumer and they are paying in the $30 range for service, for a package of services.

2412             The question is whether there is a need to sort or provide a more basic service for those people that need essentially local news, local sports, those things that we defined to be 9(1)(h) obligations, and then anything else that they won at their discretion.

2413             MR. SMITH:  I think, you know, the Commissioner can be assured that if Rogers were to ‑‑ taking Rogers as an example and it would apply to any distributor.  If Rogers were to increase the number of channels in their basic pack and increase the price such that it becomes less and less affordable and therefore create access restrictions, then you know that is an opportunity for other distributors such as ourselves and Star Choice to step in there with a lower priced package with a more limited range of channels.

2414             I think we would firmly recommend that the Commission rely on Mirko's principle number two, the marketplace, to ensure that there is a low‑priced package available within the market.

2415             I would also just come back to the point I have made already that from 2011 the OTA broadcasters, which are carrying a lot of this local news content that you are referring to, will be carried in digital terrestrial, you know, digital, crystal‑clear quality and it will be increasingly competitive for our services.

2416             So I would envisage that distributors are going to be forced to provide smaller and smaller basic packages.

2417             MR. BIBIC:  I would add two parts to that.

2418             One is that certainly there is no evidence that I can see that indicates there is a problem that needs to be fixed here with this form of regulation which we don't have today.

2419             And two, a fix like the one we are debating now would have an impact on the economics of the BDU business.  So as the Commission, you would have to kind of consider that part of the equation as well.

2420             COMMISSIONER KATZ:  No, certainly.  I'm just questioning, I guess, the fact that there are three of you in the marketplace right now, two DTH and one local BDU in any market.  What incentive do any one of you have to provide a more basic lower‑priced package to consumers unless there is increased demand and the business economics works for you?

2421             If the business economics doesn't work for you, as you have correctly said, then it is not going to be done.

2422             And I'm just questioning from a consumer perspective, if consumers need to have a more basic entry‑level package than a 39 or 63‑channel package?

2423             MR. SMITH:  I think we need subscribers so consumers will determine.  And if we find that we can't win enough subscribers in the market without offering lower‑end packages, then that would drive us to offer those low‑end packages.  At the moment that isn't a problem.

2424             As I have said to this hearing earlier on, the majority of our customers ‑‑ you know, we have been very successful about up‑selling our customers to buy more Canadian programming and more programming of all types, and our ARPU is not similar to Rogers, which they stated yesterday was $56, which is way higher than the sort of minimum services that you were describing.

2425             When in the past we have had very low‑priced services we have very, very few subscribers to those packages, very, very few.  We're talking 10 to 50,000 subscribers out of 1.8 million.

2426             I just don't see the market need for a low‑end package, particularly bearing in mind that there is a terrestrial alternative for people who really don't want to pay.

2427             MR. BIBIC:  There is a premise in the question as well which relates to the fact that there are three distributors in each local market.  I think three is good.  I wouldn't measure competition by virtue of just counting how many competitors there are.  The market is competitive and we are always seeking to differentiate ourselves.  So I think there is an issue there with the premise of the question as well.

2428             MR. SMITH:  I think you also have to consider the addition of telco TV.  The telcos in Canada, including ourselves, are launching telecommunications‑based, wireline‑based distributors as well which are adding a third or fourth competitor into the market.

2429             COMMISSIONER KATZ:  Point well taken.

2430             THE CHAIRPERSON:  I only asked you about Freesat.  If I understood you, your Freesat would be, in effect, local TV past 2011 via your services.

2431             Does a Freesat customer have to buy the basic package too or could he just say I am in Moose Jaw.  In Moose Jaw what I got over my rabbit ears in the past I will now get it via your equipment?

2432             MR. SMITH:  Correct.  There is no requirement for any purchase, for any purchase of a subscription.  They do have to buy reception equipment, but that's a one‑off purchase.

2433             THE CHAIRPERSON:  So that will be a partial answer to Mr. Katz' question, somebody who basically just wants his local TV could get it from you without buying your basic package?

2434             MR. SMITH:  Yes.  We think it is a particularly good solution for distribution of high definition services because they are hugely bandwidth intensive, and I think the industry as a whole is facing a huge bill for upgrading and developing digital terrestrial transmission towers to carry HD services across the whole of Canada.  And satellite is a perfect solution.

2435             So we are happy to bring that to the table.  It is not free.  We have to enter into commercial arrangements with the broadcasters to carry some of the cost.  It is a good solution for the industry to give the consumers in Canada that lifeline service without being forced to subscribe to a TV provider.

2436             COMMISSIONER KATZ:  Would there be any limits to where Freesat would be offered or is it urban and rural across Canada?

2437             MR. SMITH:  I mean the technology is nationwide.  So it would be very much up to, you know, the discussions with the broadcasters to see what they want to achieve.

2438             We think it is quite likely that the broadcasters will want to build terrestrial distribution technology in the major urban centers because it is economic to do so.  They get very good bang for their buck by putting a transmission tower in the middle of Toronto, but they don't get very good bang for their buck by putting a transmission tower in many of the smaller communities.  And that is where satellite really, really does deliver a good added value service.

2439             MR. FRANK:  Gary, could I just add to reinforce something that you said a few minutes ago?

2440             We, in our 10‑year experience, have had a lifeline basic service, just essentially all Canadian and focused on the OTA networks.  The pick‑up we had for that service alone was very, very small, de minimis.

2441             MR. SMITH:  Do you remember the numbers?

2442             MR. FRANK:  I don't, no, but it was ‑‑ the idea was to provide a quick jump‑off point, but nobody seized on it per se.

2443             COMMISSIONER KATZ:  Okay.  Thank you.

2444             In the subsequent bullet, still on that page 2, principle one, the last sentence says:

"The reality is that BDUs are motivated to carry a broad range of Canadian services to meet consumer demand."

2445             I have no doubt that they are motivated to do it, but I'm sure that there are some checks and balances and some economics in the process as well.

2446             How do you decide who you carry and who you drop?  You have some experience in the past, I think, where you have dropped a couple of programmers as well.

2447             MR. SMITH:  Over the last two or three years ‑‑ we could get the exact data for the Commission ‑‑ I think we have launched probably 50 or 60 services and we have probably dropped three or four.

2448             So I wouldn't want to Commission to go away with the impression that we are, you know, slashing and burning at the Canadian broadcasters because that certainly is not true.

2449             The way we do this is we assess the attractiveness of the signals to our subscribers.  We take a view as to whether it is a known brand, whether it is a good quality programming, whether it is going to generate reasonable viewership, whether it is going to attract new subscribers into the system, whether it is going to attract new opportunities for us to up‑sell, to persuade existing customers to buy this new product we are adding.  And then we offset that against the costs of carriage of that service; so the cost of the bandwidth that they absorb, the cost of servicing and the costs associated with, you know, developing the theme packs, et cetera, to cover that service.

2450             We make a decision, you know, taking into account available capacity, as to whether to launch that service.  And as a result of those sorts of calculations we have launched services like the high fidelity channels.

2451             As the gentleman from Rogers said yesterday, we have taken the lead in carrying all four high fidelity channels and that is causing our competitors to carry those as well.

2452             We were at the forefront of the Commission's hearings relating to the introduction of a new pay‑TV service in Canada, as a result of which the Allarco licence was granted.  We promoted that because we believe in adding content.

2453             That is the reason, you know, we have ended up with the business model we have.

2454             COMMISSIONER KATZ:  Do prospective Category 2 providers understand what you are looking for and what the obligations that you are seeking from them are, or are they somewhat discretionary; that you do them on a case‑by‑case basis?

2455             MR. SMITH:  Yes, we do it on a case‑by‑case basis, Commissioner, because the circumstances are continuously changing.  We encourage broadcasters to come up with, you know, innovative programming proposals that fill gaps in the market or provided competition where there was no competition or bring added value to the system, because that is where we generate benefit, by having something new on the shelves to sell which isn't just duplicative or isn't just substitution for something that already exists.

2456             So it is very much, you know, there is a willing audience here for broadcasters to bring new services to us.  There are real constraints.  We have capacity constraints and we have capacity growth steps, which mean that sometimes we have greater capability to carry new services than we do at other times because of the capacity constraints.

2457             COMMISSIONER KATZ:  But they have to go through a couple of gates themselves before they approach you, and then you on a case‑by‑case basis decide whether you will or will not carry them.

2458             MR. SMITH:  Yes.  I think in some cases we have gone further and we have actually partnered with people who we think have particularly strong proposals, as in the pay‑TV licensing hearing, and helped those businesses create that opportunity and helped those businesses get through the CRTC licensing procedure because we felt so strongly about the need for that piece of programming.

2459             So sometimes we are passive and people come to us and sometimes we would engage much more enthusiastically when we think there is a real gap in the market to fill, as we did with pay‑TV.

2460             MR. FRANK:  Gary, if I might just add to that, we encourage people to come to see us before they apply for a licence so that we can discuss with them what their plans are and we can give them an indication of where we are in terms of budget, in terms of bandwidth, in terms of interest about a particular genre or not.

2461             That way expectations are set early on both sides.  A very active meeting, prospective broadcasters.

2462             COMMISSIONER KATZ:  How do you respond ‑‑ and I am not suggesting in any way that you are at issue here.

2463             How do you respond to the questions that come to the CRTC with regard to the gatekeeping role that is occupied by BDUs?

2464             MR. SMITH:  Well, I think we naturally have a position in the market where we have to, you know, believe that there is a business model behind carrying a new service.  I think where those sorts of complaints have been levelled at the distribution community is probably by the services which haven't established that they have a solid business model, haven't established that they are going to serve a new niche in the market that is currently served, perhaps seeking to get mandatory carriage status because, you know, they must get that; that is the only way the business model can exist.

2465             We think those are all distortions in the market that the market doesn't need to worry about, because there is a healthy range of Canadian services today as opposed to the situation 13 years ago or 14 years ago when the current regulations were established.

2466             So we think the marketplace has gotten to the stage now where the Commission can be comfortable that the market will create opportunities for worthy applicants for new services and the market will naturally prevent services which are less worthy from launching.

2467             I think that is where we need to be, because we don't want a situation where anybody can launch any channel into any segment and get mandatory carriage on distributors because that creates huge competition fragmentation of the audiences and everybody's business model suffers.  I think there is a balance to be struck here.

2468             There is a natural balance certainly for ExpressVu in the terms of our capacity.  We are always going to put up the most worthy services for our customers because those are the ones that make money for us.

2469             COMMISSIONER KATZ:  Where you have had occasion to disconnect somebody, how has that manifested itself?  Was there notice?  Was there a relationship there as well or was it sort of in 60 days you are off the air type thing?

2470             MR. SMITH:  Well, it has happened in different ways, but essentially what we do is we regularly assess the value of each service on our platform to our business.  We do that by reference to the viewing figures that the service is generating ‑‑ that's a key factor ‑‑ the cost of that service to us, and the degree to which that service may be driving customer satisfaction.

2471             This is the phenomenon where customers like the idea of subscribing to worthy perhaps educational services, but they don't actually watch them very much.  That doesn't mean that an educational service might not be a worthy service for the platform because it does drive consumer behaviour and customers are satisfied when they deliver good educational services, even though they don't actually watch them that much.

2472             So we take those factors into account and we maintain merit orders within each theme pack that we operate, and the services at the bottom of the merit order, the ones that are the weakest or delivering the least value to our subscribers and to of our business, they would typically be advised of that status and they would be encouraged to improve their performance.  We would help them to do that by joint marketing initiatives and those sorts of things.

2473             And ultimately, for those services that just don't step up and don't achieve any improvement in viewing figures, don't improve the quality of their product, those are the services which I would want to perhaps consider removing from the platform in order to make space for more worthy services.

2474             But I must emphasize it has happened very, very few times, probably three or four times over the last two or three years.  It is not something ‑‑ we don't cut services every week.  For the same reason that Rogers was describing yesterday, even small services can create significant customer reaction if you do either drop them from the platform or repackage them.

2475             So we work on a forward‑looking timeframe and we try to give broadcasters lots of opportunities to improve to keep the quality of their service where it needs to be.

2476             COMMISSIONER KATZ:  Okay.  Thank you.

2477             With regard to principle three, the suggestion that we recognize differences between cable and DTH distributors, we have always worked hard to be technologically neutral and I know that in other sectors that you operate in there is a strong belief that regulation should be symmetrical as well.

2478             What you are suggesting here is that we look at these two sectors of this industry differently simply because of the technology that is being deployed and I guess some other good and valid reasons, one of which I will go back and find out what the government's 1995 Order in Council actually said and if it provided some flexibility and some latitude there.

2479             If you can comment on that I would appreciate it.

2480             MR. BIBIC:  You will see when you refer to the 1995 Order‑in‑Council that it does give the required flexibility and our comment here is entirely consistent with the Order‑in‑Council.  It doesn't talk about regulation that's the same.  It talks about regulation that's substantially the same.

2481             Symmetry is an important concept and of course you have heard us talk about symmetry in other contexts.  Of course symmetry doesn't mean that things need to be identical.  We simply asked for reasonable accommodation given the technological platforms, and there is significant benefit to the industry as a result.

2482             So we think we are certainly entirely consistent in this principle with the Order‑in‑Council which governs and we are certainly consistent in our arguments and our positions across our various lines of business.

2483             MR. SMITH:  From a business perspective I think, you know, we would stress that we are not asking the Commission to grant any special favours whatsoever.  We are simply asking the Commission to acknowledge the real practical, technical details between platforms.

2484             Satellite doesn't do VOD.  We can't ‑‑ there is no point in creating a regulatory solution that is based around VOD because it doesn't work on satellite, full stop.  Equally, satellite is great at distributing signals across the whole of Canada.  It's a very, very efficient way.  It's a hugely efficient way.  It's probably the most efficient way that exists to get high bandwidth services into a wide range of households across a wide geography.

2485             You know, what we encourage the Commission to do is create a regulatory environment which applies equally to all distributors except where there is good justification from a technological means to differentiate.  And the example of distant signals is a prime one, is that our solution to distant signals is different to Rogers.  That means the most appropriate way to resolve that issue is not through policy regulation but through negotiation, and that's what we propose.

2486             MR. FRANK:  Commissioner Katz, if I can just add, the CRTC has recognized certainty differences too, both in our original licensing decision and in our renewal in terms of distant signals and one or two other things.

2487             If you look at in our evidence you will see that the differences between satellite and cable in terms of regulatory requirements are very small.  Yesterday we heard that our cable competitors feel that we get a break.  I think if you look at our analysis you will see that it's neutral at worst and at best case advantage them, not us.

2488             COMMISSIONER KATZ:  Are there any situations where you are looking for symmetry, if I can call it that, to the DTH model ‑‑ to the terrestrial model where you believe they are being favoured in any way?

2489             MR. FRANK:  I think the community channel opportunities is the only one that jumps to my mind.

2490             COMMISSIONER KATZ:  M'hm.

2491             MR. FRANK:  And we proposed earlier today an alternative to that which I think might be helpful.

2492             MR. BIBIC:  With respect to our terrestrial television distribution businesses, I mean, certainly we have no issue with the same rules applying as they do to other terrestrial distribution businesses; in other words, cable.  At the end of the day we are not saying in one case deregulate on the DTH side and regulate on the cable BDU side.  That's not what we are saying.  We are saying uphold the same objectives.

2493             But you have got to realize there is different ways to get there when you are talking about cable versus DTH; that's all.  So there is consistency and symmetry in terms of the ultimate objectives but there may be differences in the way you get there.

2494             And the default position as we expressed in the opening statement is that, you know, the framework needs to be the same.  So that's default except where technology and DTH and the national footprint dictate otherwise.

2495             MR. ELDER:  And Commissioner Katz, if I can just jump in, you made a reference to the direction.  I mean, I point in particular to section four of the direction.  There is some very clear language that was used by the government.  You know, it talks about regulation by appropriate means that substantially the same rules should apply to DTH as to terrestrial, that the Commission or that the undertaking should be subject to equitable obligations, not necessarily equal.

2496             It is very clearly contemplated in this direction that it will not be a cookie cutter approach to regulation and that it will recognize the apparent differences and the underlying technologies and economic models.

2497             COMMISSIONER KATZ:  Thank you.

2498             And not to beat a dead horse, because I think my colleagues have already talked about the equivalent of the 43 cents per subscriber, but if I wanted to calculate the value of what that is do I simply take the equivalent 43 cents times 12 months, times the number of customers you have, and that would be in simplistic terms the value of this?

2499             MR. SMITH:  That's how we derive the 43 cents, Commissioner, when we did the back of the envelope calculation yesterday.

2500             I am not sure whether we made this offer but if you would like us to table the details in reply we would be happy to do so.

2501             COMMISSIONER KATZ:  Yes, I actually would because some of the components I'm sure that you have put in here, the backhaul cost, the encoding cost, whatever else as well of having a background in costing, one comes up with very logical ‑‑ with very innovative ways of costing things out; opportunity costs, returns and whatever else as well.

2502             I would be interested to see how that number manifested itself so I would appreciate seeing that.

2503             MR. SMITH:  We will be happy to provide the details.

2504             COMMISSIONER KATZ:  Those are all my questions.

2505             THE CHAIRPERSON:  Thank you.

2506             Rita.

2507             COMMISSIONER CUGINI:  Thank you.  I too just have a couple of follow‑up questions.  And I did hear you on the reasoning for eliminating the access rules.

2508             The specialty world has become a healthy and mature business but some might argue that it is thanks to the access rules that it is such a healthy and mature business and that services can stand on their own.

2509             So now, going forward, in the absence of access rules, how do we ensure that start‑ups, or you know some have called them the independents, continue to provide the kind of programming diversity in the Canadian broadcasting system in the absence of access rules?

2510             Some have become so successful that they have just sold for hundreds of millions of dollars so how do ‑‑ going forward how do we ensure that that continues?

2511             MR. SMITH:  Well, I think I will invite Mirko and Chris to comment on this one as well because I'm sure they have got useful contributions to make.

2512             In my opinion the route we proposed where we maintain a predominance requirement, where we eliminate genre protection between Canadian services to allow Canadian services to compete with each other, and we eliminate must carry so all services have to ‑‑ apart from the ones in basic of course, have to continue to earn their position on distributor's platforms; those three measures when combined with starting off now in 2008 with a healthy industry, not one ‑‑ the industry that existed 13 years ago where there were no specialities; they were all yet to launch ‑‑ I think that's sufficient, Commissioner.

2513             You know, the time for leg ups because it was a valid requirement in the years gone by when we had a significant growth of the industry.  The access requirements fulfilled a need.  But I think that time is gone now.

2514             Another point I would raise is that our consumers are increasingly facing choices.  They are able to consume, you know, the episode of House that they missed on a service by going to the web and just downloading it or buying a DVD or whatever, and the distributors in Canada are equally facing matters of threat.  It's not just the broadcasters.  It's the distributors that are facing that threat of fragmentation of the distribution audience.

2515             Now, the more rules we have to give Canadian broadcasters a leg up in this new world, they are actually also creating constraints on a distributor's ability to compete with alternative distribution mechanisms.  And I think that the essence of success here for the Commission is to take away a lot of these access restrictions because I don't think they are needed long term.  But perhaps, and I think is part of our proposal, is to allow for a period of time when the industry can get used to this new regime.  And we previously proposed that two or three years is the right sort of period to tell the industry the rules are changing and from 2011 or 2012 onwards this is the way it's going to work.  That gives people time to adjust to the new reality and it allows people like us to compete with alternative distribution mechanisms.

2516             So I think that's where the solution lies; a signal to the industry that it's only preponderance, no genre protection.  Those two key things which will protect Canadian services going forward but they have got three years to get there.  And that will be a good solution for this ‑‑ a good outcome from this hearing.

2517             MR. FRANK:  Could I simply add that I think we heard yesterday from the Rogers panel that one of the by products of competition generally is excellence.  One way of guaranteeing a knock on the door from all of the distributors in Canada is to have an excellent program and product.  I know of no Canadian programming product that isn't valued by our customers that we don't have and we will continue to have simply because we need to be competitive.

2518             COMMISSIONER CUGINI:  Thank you.

2519             THE CHAIRPERSON:  But surely that last point begs the question how do the customers know that they are not on any system?

2520             MR. FRANK:  There is unregulated competition.  There is also illegal competition we face and the chances of those services ‑‑ those distribution media having a similar type of programming product is pretty good.  If we don't have it we will hear about it.

2521             MR. SMITH:  We often see products launching or services seeking carriage which have business models which are actually proven in other markets, Mr. Chairman.  So you know there are many, many services in the U.S. and the U.K. which are used as case studies to say, "Well, that worked there.  It should work in Canada as well."

2522             So you know, generally when a service comes to us like the pay TV services or like the HiFi services, you know, which are going to add value and be attractive to consumers they are pretty obvious and it's pretty easy to determine it.

2523             THE CHAIRPERSON:  But surely you are not talking about copycat for foreign programs.  You are talking about original Canadian ones.  And are you suggesting either that you ‑‑ go onto the internet to get known before they get ‑‑ I mean, I don't understand your answer.

2524             MR. SMITH:  No, but to expand upon my answer, things like you know pay TV services, we are very vocal supporters of the need for an additional competition in the pay TV movie world in Canada and we supported the licence application.  And it was a different licensee that I see approved but we still achieved our objective of getting competition in that market with Allarco's licence.

2525             Now, those types of services you know they are ‑‑ they are Canadian services but there are other markets with many movie services which demonstrate that it can work.  And in that case I think the applicants were citing the U.S. as being a good piece of evidence that multiple movie services can be sustained in the market.  We have now got Allarco as a good licensee providing good quality content.

2526             THE CHAIRPERSON:  Okay.

2527             MR. SMITH:  And we are pleased to continue to support them.

2528             THE CHAIRPERSON:  What do I do if I am a Canadian programmer of specialty; I have a hot idea, nobody else has done it, et cetera?  You say, "Well, if the customers demand it we will show it."  How do I prove to you that customers demand it?

2529             MR. SMITH:  Well, for example issues of ‑‑ there are many, many niche services available on the internet these days; things like extreme sports, et cetera, there is a lot of coverage of those types of services on the internet.  And you know broadcasters are coming to us saying it would be good to bring that into a broadcast world because clearly there is a demand from the alternative distribution mechanisms.

2530             So it's going to go the other way as well, Mr. Chairman, from the internet back into the broadcast world.

2531             THE CHAIRPERSON:  I am just picking up the contradictions here.  You told my colleague you are not gatekeepers but here you are telling me, you know somebody who has got it ‑‑ you will put on what the customers will demand.  But how does a customer know what to demand if he hasn't had a chance to show it or to exhibit it?

2532             MR. SMITH:  But Mr. Chairman, we are not proposing that existing viewership is the only criteria.  I think it's the business model that the broadcaster brings is the important thing, and the likely viewing of that service is one factor that we would look at and I'm sure the Commission would look at when licensing a new service.

2533             And the more evidence that a broadcaster can bring to say there is definitely going to be an audience for this service because of this, that and the other, that's going to help us ‑‑ help persuade us to carry the service.  It's not the only factor.  Price and brand and other things are all major factors.

2534             One of the biggest factors which I'm sure is an issue for the Commission is, well, it's duplicative?  Is it just going to take the place of an existing service?  Because that doesn't add value either.

2535             THE CHAIRPERSON:  The idea that I floated yesterday with Rogers of having an initial leg up maybe for the first licence period or something and after that you are on your own, you either made it or not it doesn't appeal to you?

2536             MR. SMITH:  No, it doesn't.  We don't think there is a need for a leg up at all.  We think the market is healthy and good competition will drive healthy new entrants.  And certainly the term of the licence period at seven years I think it is, that's a long period in the context of the next regulation period and it simply wouldn't work.

2537             I do support a grandfathering period for the existing services as I described to Commissioner Cugini ‑‑ in response to Commissioner Cugini's question that the existing services need a time period to get used to the different Cancon obligations, the different CPE and the fact that they may be losing must carry status.  So you know a good grandfathering period of two or three years would be appropriate.

2538             THE CHAIRPERSON:  (off microphone)

2539             COMMISSIONER CUGINI:  No, that's fine because that also brings to mind what your current ‑‑ what you are asking potential applicants or potential licensees to do is almost fill out the old application form to the Commission where it showed proof of demand, and market research and demographic research to prove that there is in fact a market for such a service when the Commission has streamlined the whole licensing approach, certainly of Category 2 services.

2540             MR. SMITH:  Yes.

2541             COMMISSIONER CUGINI:  Now, you are asking people to go back to the old ‑‑

2542             MR. SMITH:  Well, I don't think we are.

2543             COMMISSIONER CUGINI:  ‑‑ you know three‑inch binder of legal size paper.

2544             MR. SMITH:  I'm not sure we are, Commissioner.  I think commercial reality just says that if we are asked to carry a new service we are going to ask those questions regardless of whatever regulation exists, et cetera, and obviously regulation can overturn it.  It can force us to carry services at the moment which wouldn't pass the test.  And that's the area we think needs to be relaxed.

2545             You know there is a business reality in every television market in the world.  You know, I think the services generally have to justify their existence and those sorts of criteria are the ones that we would expect to use.

2546             I would also point out that over the last, I think, three years or so the Commission has licensed many services into the discretionary category of not ‑‑ without giving them must carry status.  And a large number of those services have been picked up and carried by distributors.

2547             I think the Commission can draw a lot of comfort from that history over the last few years that a lot of services have been licensed.  A lot of them have been carried by distributors, and that's just market forces which are giving us that result and it's a good result.

2548             COMMISSIONER CUGINI:  The bottom line if it's worth it you will carry it?

2549             MR. SMITH:  Yes.

2550             MR. FRANK:  If I might add that at a more granular level there is obviously a dialogue we encourage between existing and prospective programmers and our company.  As well, we are continuously monitoring our customers through focus groups and other information pieces to take their pulse, to see what they want.

2551             You know, through that sort of triangulation of information I think we have got a pretty good idea of what our programming is going to look at in the immediate to near term future.

2552             COMMISSIONER CUGINI:  Well, thank you for that additional information.

2553             I too have a follow‑up question on the SRDU discussion and your position that they should be exempt from licensing.  I need a little bit more information as to how your uplink equalization formula works.

2554             If we were to exempt SRDUs what assurances do we have that this will in fact continue to be as competitive as you say it is and be fair to all services who must use your uplink facilities in order to have their services carried?

2555             MR. SMITH:  Chris is much more familiar with the details of this than I am so I will ask Chris to respond.

2556             But let me just give the Commission some context here, is that the SRDU business in Canada is already quite competitive.  We offer SRDU services as does Cancon and we are quite regularly approached by broadcasters wishing to gain SRDU carriage to the cable headends to give them quotes, and sometimes we win a business and sometimes we don't.

2557             The issue we have ‑‑

2558             COMMISSIONER CUGINI:  I'm sorry to interrupt you.  And when you don't get the business they go to Cancon?

2559             MR. SMITH:  Frequently, yes.  I think they also can go to Telesat.

2560             Is that right, Chris?

2561             MR. FRANK:  That's correct.

2562             And also, one element we are missing here is terrestrial distribution ‑‑ I think they are called TRUs.  More and more now we are seeing build out of cost‑effective fibre distribution, of multiple signals.  I think most of Quebec is covered.  I know Rogers has told us they intend to cover all of their territory so there is both terrestrial and satellite competition for this market.

2563             MR. SMITH:  Thank you, Chris.

2564             I wanted to expand upon the answer because our issue about what we call equalization fees is due to a slightly different issue, and that is that when broadcasters contract with one or other of the satellite distributors, either Star Choice or Cancon or other than ourselves, there is a decision to make as to whether that carriage is ‑‑ that signal is made available not only for SRDU purposes to cable headends, but also to the ends' DTH customers of the platforms carrying them.

2565             Now, the challenge we face is a commercial one and that is when a broadcaster contracts with our competitor to carry an SRDU service, which we have no problem with, but then makes that service available to the DTH business associated with our competitor.  And again, that's not necessarily an issue if the benefit that our giving that DTH business is taken account of in the commercial arrangements for the fees, that in this case Star Choice may pay for carriage of that signal or for the subscribers onto our signal.

2566             Now, we find too many occasions quite frankly, Commissioner, where we are asked to pay exactly the same rates to the broadcaster as we believe are applied to our competitor and, yet, our competitor also gets the benefit of being able to reuse the signal that is carried by the SRDU business for their DTH customers and, essentially, that means the broadcaster is giving them a better deal than we are getting.

2567             So we have a construct that we have designed to encourage the broadcasters to level the playing field.  And that's the entire purpose of this equalization fee arrangement, whereby if that happens then we would see an equivalent benefit to the value of the bandwidth being credited to us in some way through the commercial arrangements we have for that broadcaster, such that we narrow the commercial disadvantage to our competitor.

2568             COMMISSIONER CUGINI:  So if the service agrees to have its services distributed by Cancon to Star Choice without a fee that programming service must pay you the uplink fee?

2569             I am looking at your footnote 40 here and I was just a little bit ‑‑

2570             MR. SMITH:  That's essentially how it works.  I mean it's really intended not so much to cause broadcasters extra costs to pay us.  It's really intended as a way to ensure that Star Choice is treated equitably by broadcasters to the way the broadcaster is treating us.  So if we have to pay for our bandwidth we think Star Choice should have to pay for their own bandwidth as well and to the extent they don't then you know they shouldn't have to ‑‑ they should have to pay potentially higher fees to the broadcasters.

2571             But there are a variety of solutions, Commissioner, to this.  It's not always that satellite equalization fees are the solution.  Sometimes there are other ‑‑ you know, perhaps we get a different rate or whatever.

2572             But it's an important concept to us and we have been very firm with broadcasters that we want a level playing field with our competitors.  That hasn't yet to the best of my knowledge reached the Commission in terms of any dispute resolution.  There remains a possibility that it will do at some point.

2573             MR. FRANK:  Can I just add that I think it's instructive to look at the way the HD business is unfolding.  I think all of the new specialty and pay HD services with one or two possible exceptions are saying to the two DTH companies, "Come and get our signal.  We are not going to favour one or the other.  We are not" ‑‑ we are talking about a lot of bandwidth here, a lot of very expensive bandwidth.

2574             And so the way we are getting around this subsidy issue is by both companies coming and getting the signal and delivering it at their cost.  This is essentially what we have been trying to do for the last five or six years in the standard definition business as well.

2575             There is no need ‑‑ satellite equalization does not come into play if there is no subsidy of our competitors' direct‑to‑home, direct to the subscriber distribution cost.  So it could be the issue will disappear when that subsidy disappears.

2576             COMMISSIONER CUGINI:  Okay.

2577             MR. FRANK:  If I could just take a moment too to clarify our position on SRDU, we are just asking for exemption here and I guess to us the way to look at is what is the Commission gaining right now from formal licensing?  And we feel there isn't a significant contribution to the objectives of the Broadcasting Act by actually licensing as opposed to exempting these services.  That doesn't mean that the exemptions couldn't have conditions in it that would satisfy the Commission on an ongoing basis or allow them to come in on an ex‑post basis and look at an undue preference claim, for example, but we just don't see the need for the licensing.

2578             And I think, as we noted in our original comments, on our last SRDU I don't think there were any substantive issues that were part of that licence renewal hearing.

2579             COMMISSIONER CUGINI:  Safeguards are what we do best.

2580             MR. FRANK:  Could I just add ‑‑

2581             COMMISSIONER CUGINI:  Sure.

2582             MR. FRANK:  ‑‑ one thought on this SE, satellite equalization issue?

2583             This was well canvassed in our licence renewal and I think the record is quite complete both in terms of our explanation and the Commission's take of that point on the problem.

2584             COMMISSIONER CUGINI:  And because, Mr. Frank, you did bring up the issue of HD services and the capacity and the bandwidth that they do eat up and will continue to eat up as more HD services launch, will that have any impact on the distribution of your freesat concept?

2585             MR. FRANK:  I think the two are mutually exclusive.

2586             COMMISSIONER CUGINI:  Okay.

2587             MR. SMITH:  If I can just ‑‑ I may have misunderstood the Commission's question but I think that freesat involves the use of a significant chunk of bandwidth in addition to what we would otherwise do and that bandwidth has a cost associated with it.  So it's one of the costs that we would need to consider as part of an all encompassing arranging with the broadcasters should we arrange into an arrangement with the broadcasters.

2588             We are willing to bring that bandwidth to the table at the moment but it does depend on the outcome of this hearing and other issues like if our business gets impacted by fee‑for‑carriage or if the Commission decides against our advice to adopt a regulated solution to distant signals that disadvantages us, then we may not be able to afford to help the industry in the freesat world.

2589             COMMISSIONER CUGINI:  And what may therefore come off the table if all of that were to come true is in fact freesat?

2590             MR. SMITH:  It's only one of the factors.  I wouldn't to put it out there as, you know, the sacred cow.

2591             COMMISSIONER CUGINI:  I see.

2592             MR. SMITH:  It's very much one of the factors in the negotiation but there are many others.

2593             COMMISSIONER ARPIN:  I don't understand why you are saying it requires more bandwidth to offer freesat because you are offering already a signal that is on your satellite.  Obviously, it may need more bandwidth if you were to add more Canadian services but when the Chairman asked you questions about freesat you said that it was a matter of negotiation and more than likely you will be picking up one of the network existing stations on your satellite.

2594             MR. SMITH:  That's ‑‑

2595             COMMISSIONER ARPIN:  So why are you claiming that it will require more bandwidth?

2596             MR. SMITH:  Well, we think one of the opportunities that we have here is to ‑‑ if we don't implement freesat then we would carry one or two signals from each of the networks nationwide.  And I think in our submission we said two services, one east, one west.  So we would have a CTV East and a CTV West and that would be our proposal.

2597             If we do launch freesat one of the things that we are willing to bring to the table is additional capacity to carry, for example, an HD service from CTV in each major time zone.  So there will be more CTV services so they will be more localized with freesat.  It's not ‑‑ the cost of doing that would be completely uneconomic for a satellite platform to do on its own as part of its service in Canada.  It just doesn't work.

2598             But when you take into account the avoidance of costs that broadcasters will face with the savings that they won't have to incur building distribution towers in so many communities, we think we can bring a much more economic solution to the industry.  And it's not free but it's much more economic and it still gives, you know, maybe one signal from each of the major networks in each time zone as being the service that will be available from freesat.

2599             It's a pretty exciting, you know, opportunity I think for the industry if the industry wishes to grasp onto it.

2600             Does that answer the Commissioner's question?

2601             MR. FRANK:  So in a nutshell, Commissioner Arpin, it's like the discussion we just had with Commissioner Katz.  We are bringing to the table a bandwidth which we wouldn't ordinarily in a normal course of our business allocate to that kind of service.

2602             COMMISSIONER ARPIN:  But you will eventually, I am sure, if it's not already what you are doing, carrying the major networks already in HD.  I will guess that you have already the Toronto signal and the Montreal ‑‑ the Montreal HD signal of the over‑the‑air broadcasters.

2603             MR. SMITH:  We certainly don't have the number of signals that we would envisage potentially carrying on freesat, Mr. Commissioner.  As I have suggested, we think that our packaging going forward we would be able to sustain one east, one west from each of the networks.  I think that's pretty much what we have got today but Chris may have more detail.

2604             MR. FRANK:  We are moving in that direction for English‑language HD OTA signals, signals from Toronto and Vancouver and for our Quebec French‑language networks from Montreal.

2605             THE CHAIRPERSON:  But that's a different freesat than you and I talked earlier.  I thought freesat was to avoid the OTA broadcaster to have to build a new HD antenna.  And now you are talking Innovex, some sort of homogenization, aren't you, one signal per province? 

2606             You say you will have for each major carrier one signal per province, et cetera.  That is not a local signal necessarily, that will be a Montreal signal or something?  You know, in Quebec there is a big concern about the Montrealisation of Quebec in the broadcasting, et cetera.

2607             I thought freesat, the whole idea was that you would offer to local communities ‑‑ other than building an antenna, you can get the same programming over our dish and black box and you don't even have to be an ExpressVu customer.  You can just get that station which before you got the over‑the‑air, you can now get it through us if you buy the equipment.

2608             MR. SMITH:  I think the Chairman has correctly understood the proposition to the consumer.  They don't have to pay any subscription, they only have to pay for the receiving equipment.

2609             With regard to the signals they gain access to, this is a matter for discussion with the relevant broadcasters.  Our position is that if we do not carry freesat, we will be able to carry one east and one west for each of the networks.

2610             If we do carry freesats, we could see a good solution which would involve one signal from each major time zone.  So that would increase it from two signals from each network across Canada to maybe six, I think ‑‑ five or six, I am not sure.

2611             If the broadcasters wanted to go further, you will hear from Telesat later on that there is a lot of bandwidth available if somebody is prepared to pay for it.  So I think our involvement in this, we can volunteer the use of our platform technology and we can bring a certain amount of bandwidth to the table to help this solution work.

2612             If the broadcasters wanted local/interlocal using satellite and are prepared to pay the hundreds of millions or billions of dollars that are required for the satellite bandwidth, then it is technically possible and I am sure Telesat would appreciate the business.

2613             THE CHAIRPERSON:  Well, within limits, everything but I mean when you say per time zone, et cetera, it would be to the detriment of the existing local signal?

2614             MR. SMITH:  I think the broadcasters would need to ‑‑ part of their proposal would be that they would be consolidating in some way or perhaps things like the partial channel solution that Chris described, that would also work in HD.

2615             It is not a perfect solution, Mr. Chairman, because it is not going to deliver 130 different variants in HD to HD communities, but quite frankly, I don't think the Canadian industry can afford to deliver 130 local variants in HD.  The cost of doing it, either via satellite or via terrestrial, is just too high.

2616             THE CHAIRPERSON:  Okay, thank you.

2617             COMMISSIONER CUGINI:  Thank you.  Just a couple more questions.

2618             Did I hear you correctly when you estimated that the value of local avails is about $20 million?

2619             MR. SMITH:  That is my understanding.  Mr. Kiefl was the author of that estimate, so you could ask Mr. Kiefl to comment.

2620             MR. KIEFL:  Yes, Commissioner, I was asked by the CCTA about three years ago ‑‑ I think it was actually three years ago last month when the local avails issue last came up before the Commission and they asked me to review a study that the CAB had conducted.  The CAB study equated ads in the stations such as A&E and CNN and so forth as equivalent in relative value to local TV station ads.  I went to the States and reviewed how local avails were being sold there. 

2621             I heard you say yesterday that your impression was that it was all local advertising.  In fact, that is not the case.  About three or four years ago, a major effort was made on the part of the cable companies there to sell ads on a joint basis and in fact you can buy an ad today in the States on 20 or 30 different specialty channels at the same time on multiple cable outlets. 

2622             So effectively, it has turned into a national service or a near‑national service.  So it is a combination of national ads and local ads.

2623             The local ads themselves, the expression I remember from the research was "dollar a holler," that local ads were being sold to local pizzerias and so forth for just a fraction of what a local TV station would charge for the same advertisement. 

2624             There are some logical reasons for that but the bottom line is that the relative value of local avails seems to be much lower than it would be for the rest of the industry, probably equivalent to something along the lines of what radio ads are being sold for, at a much lower level.

2625             The CAB, if memory serves me, estimated it was going to be $87‑90 million worth of revenue that would be taken out of the system, which is a complicated question as to whether it would be actually taken out.

2626             In running the same numbers but with more conservative estimates as to what the value really was of these local avails, it came out at something like $20 million.

2627             COMMISSIONER CUGINI:  So that is for the whole industry?

2628             MR. KIEFL:  It is for the whole industry.

2629             COMMISSIONER CUGINI:  It is not just what Bell ExpressVu's share would be if we did allow ‑‑

2630             MR. KIEFL:  Exactly.

2631             COMMISSIONER CUGINI:  ‑‑ the sale of local ads?

2632             MR. KIEFL:  I assume, although Rogers would have to correct me, that when Rogers said $60 million yesterday that it was likely the whole industry, not Rogers itself.

2633             COMMISSIONER CUGINI:  Okay.  Those are all my questions.  Thank you very much.

2634             Thank you, Mr. Chairman.

2635             THE CHAIRPERSON:  Michel, you had a question?

2636             CONSEILLER MORIN : Oui.  Je voudrais revenir au service de base.

2637             Dans votre définition tout à l'heure, Monsieur Bibic, vous avez dit, en fait, dans le fond, qu'il n'y a plus de place pour... vous n'avez pas dit ça comme ça, mais il n'y a plus de place pour les canaux spécialisés, sauf ceux dont vous décidez qu'ils sont sur le service de base.  Il n'y a plus vraiment de règles pour dire, bon bien, c'est un accès garantit, sauf la clause grand‑père dont a parlé le président tout à l'heure.

2638             Est‑ce que c'est bien ça?

2639             M. BIBIC : C'est bien ça, il n'y aurait plus d'accès garantit pour les services spécialisés. 

2640             Néanmoins, des services spécialisés pourraient être offerts par Bell ExpressVu sur le service de base, parce qu'un concept dans notre proposition, c'est qu'on aurait la flexibilité d'offrir le service de base qu'on voudrait, en respectant les normes garanties, ou un service spécialisé serait offert sur une base discrétionnaire.

2641             Et en bout de ligne, dans les cas très, très, très minoritaires, ça se pourrait qu'un service ne serait pas offert par Bell ExpressVu du tout.

2642             CONSEILLER MORIN : Donc, il n'y a plus de règle d'assemblage, il n'y a plus de règle d'accès dans le fond, vous êtes le nouveau CRTC en ce qui concerne les canaux spécialisés, c'est un peu ça?

2643             M. BIBIC : Non, je ne crois pas que c'est ça.  En bout de ligne, quelqu'un doit décider, et on croit que c'est le marché qui doit décider. 

2644             Si on veut une règle absolue, on a vraiment deux choix, hein. 

2645             Un choix, c'est qu'il n'y a pas de règle, et dans ce cas‑là, on laisse les parties négocier et s'arranger, ou c'est le CRTC qui pourrait prendre la place des participants de décider, mais ça, c'est la réglementation qu'on croit qui n'est pas nécessaire.

2646             L'autre choix si on veut une règle absolue, c'est de dire que tout le monde a accès garanti, et on croit que ça serait étouffant, et il n'y a pas de preuve... le marché fonctionne très bien aujourd'hui, et on ne croit pas qu'on a besoin d'une règle absolue qui exigerait que tous les services auraient un accès garanti.

2647             CONSEILLER MORIN : Mais est‑ce qu'il n'y aurait pas ‑‑ et c'est un peu là où je veux vous amener ‑‑ un certain compromis à faire? 

2648             On s'entend qu'il n'y a plus de règle d'assemblage.  On s'entend qu'il n'y a plus de règle d'accès.  On s'entend que vous ajoutez les canaux spécialisés que vous voulez, parce que c'est dans votre plan d'affaires et que vous voulez vous distinguer des entreprises de distribution.  On s'entend là‑dessus.

2649             Mais nous, on a été nommé comme conseillers pour faciliter, augmenter, bonifier la production canadienne d'émissions, et on a vu au cours des dernières années la contribution extrêmement importante des canaux spécialisés, et là, on les laisse complètement dépourvus de quelque chose où ils pourraient s'accrocher pour être sur votre service de base. 

2650             Évidemment, ils peuvent négocier, mais vous savez très bien que les petits producteurs indépendants n'ont pas le poids des grands qui ont plusieurs canaux spécialisés, comme CTV, comme Astral, et là, ils n'ont rien dans le fond pour s'accrocher, pour innover, pour présenter quelque chose.

2651             Moi, j'ai pensé et je pense à un modèle qui se baserait historiquement sur les facteurs qu'a toujours considérés le CRTC, le Cancon et le CPE, et je voudrais les numériser, c'est‑à‑dire qu'ils ont des valeurs.

2652             Sportsnet, c'est 60 pour cent Cancon, puis c'est 54 pour cent programmation canadienne.  Mais Sportsnet est un... je vous donne cet exemple‑là.  Sportsnet est très coûteux au consommateur.  Il coûte 78 cents, et TCN, c'est $1.07.  Dans mon plan, ces deux‑là, ils ne seront jamais sur le service de base parce qu'ils coûtent trop chers au consommateur.

2653             Par contre, si on avait un modèle ‑‑ et je reviens là‑dessus ‑‑ une espèce de framework où on pourrait encourager la production canadienne par le CPE, par le Cancon, qui font un nombre de points, mais on soustrairait de ce nombre de points le taux officiel du CRTC.

2654             Et nous, la seule ‑‑ et ça ferait l'objet d'audience ‑‑ la seule décision qu'on aurait à prendre, nous commissaires, ce serait d'établir une espèce de niveau, threshold, une espèce de barre où on dirait : Tous les canaux spécialisés qui ont, disons, 100 points, bien, eux, ils font partie du service de base. 

2655             Ceux qui n'ont pas ce 100 points‑là, bien, ils peuvent essayer de l'avoir.  Comment?  Soit en augmentant leur Cancon, soit en augmentant leur CPE, soit en diminuant le coût au consommateur, parce que la condition d'avoir de ces services‑là sur le service de base, c'est de minimiser le coût au consommateur.  Tout le monde s'entend ici.

2656             Mais là, tous les joueurs seraient dans la même patinoire, et pour reprendre vos expressions depuis le début, tous pourraient jouer selon les règles du marché. 

2657             La seule décision que nous, nous prendrions, la seule décision, ce serait d'établir ce niveau, qui pourrait être différent selon le marché québécois ou le marché ontarien, où, d'après les chiffres que j'ai ici, le nombre est moins important.  Mais disons, grosso modo, que du côté anglophone, pour le marché de Toronto, j'en ai trouvé à peu près sept ou huit qui ont plus que 100 points. 

2658             Mais à ce moment‑là, l'indépendant n'est pas dans une condition de négocier avec vous.  Il peut faire son plan d'affaires et décider qu'il sera sur le service de base ou, inversement, comme TSN, dire, moi, je suis tellement populaire, le service de base, je m'en fous, et je vais charger peut‑être dans cinq ans non pas $1.00 mais $2.00, et, de toute façon, vous le transporterez, il sera vu.

2659             Alors, voyez‑vous, c'est un peu ce genre de modèle, auquel je pense, qui pourrait donner une impulsion et une direction, une direction à la programmation canadienne qui aille au‑delà de la règle de prépondérance que vous évoquez, qui est bien, mais c'est juste une règle de prépondérance.

2660             Alors, je ne sais pas si vous avez des réactions à cela.

2661             MR. SMITH:  I think the Commissioner raises an interesting model and we had the chance to listen to the Commissioner's model when Rogers were presenting yesterday.

2662             I think the point system does have a potential function.  If the Commission were to not agree with Bell's position of eliminating this core group of services that get must‑carry status and if the Commission decides that there is still a role for a core group of services to have some must‑carry status ‑‑ and I am not talking about basic here, I am just talking about must carry ‑‑ then I think a point system of the type that the Commissioner outlines is a potentially suitable way to assess which services achieve that status.

2663             It does create some problems for distributors and particularly for ExpressVu because one of the things that distributors need is we need certainty.  We need to know whether the number of must‑carrys outside of basic are going to be 10, 15, 20, 30, 40, 50, whatever the number is, and a point system theoretically would be unlimited. 

2664             So if the Commission goes in that direction, and our other evidence is recommending that you do not need to, but if you do decide to go in that direction, then we would appreciate a cap on the number of services that are going to be put into that category, and presumably, the thresholds that Commissioner Morin refers to would need to be adjusted such that the quantities are maintained.

2665             CONSEILLER MORIN : Oui.  Je pense que, à la rigueur, ce threshold pourrait être révisé à tous les trois ans, par exemple.

2666             Et j'ajouterais une condition.  C'est évident que dans ma tête, ce n'est pas un accès illimité.  Au contraire, on pose des conditions, et on aurait à discuter du niveau, du threshold, à tous les trois ans.

2667             Mais vous parlez de predictability, de prévisibilité.  Ça vaut pour vous, mais ça vaut pour les canaux spécialisés aussi.  Avec un plan comme celui‑là, ils pourraient voir évaluer leur plan d'affaires et dire, voici où on s'en va, et on a l'assurance que ce niveau ne sera révisé qu'à tous les trois ans. 

2668             Ce serait une double assurance, et pour vous, et pour les canaux spécialisés, qui prennent une importance de plus en plus grande dans votre offre.

2669             MR. SMITH:  Yes, I take the Commissioner's point.  I would go back to the earlier statements that we made in our evidence that we just feel that the marketplace doesn't need such a system.

2670             In essence, whichever services were licensed as must‑carrys through such a system, we think we will probably be carrying anyway because they will be of a nature that will be picked up by other distributors.  So either customers will demand the services or the competitive situation will demand that we carry them to have a product competing with our competitors.  So I am not that worried that the services will not gain access to Canadians. 

2671             I think that the problem with either putting these services through such a formula into basic or using this as a way to force a favourable commercial negotiation by giving a broadcaster must‑carry status ultimately will become damaging to the industry. 

2672             Now, I don't think it is damaging in the short term, so such a service would work for the next two, three, four years. 

2673             But I think looking forward, and we have to look forward because this hearing is about potentially the next 10 or 15 years, I think we will be competing with the internet as a distribution mechanism and the internet will not have these rules ‑‑ potentially or pending the Chairman's hearing in September, of course ‑‑ and you would be restricting distributors in their ability to compete effectively with alternative distribution means.

2674             So I am not sure it is necessary and I am not sure it is in the long‑term interest of the industry.

2675             CONSEILLER MORIN : Comme je l'ai dit tout à l'heure, pour moi, c'est un compromis, et c'est certain que, à moyen terme, on pourrait abandonner cette règle‑là.  C'est un compromis entre toutes les règles que nous avons ici : le gros livre rouge et une seule règle et une patinoire pour les joueurs.

2676             Et j'ajouterais une chose à laquelle j'ai pensé.  Pour éviter que vous ayez trop de gens qui auraient le bon contenu canadien et la bonne programmation canadienne mais qui ne seraient pas écoutés, il y aurait un test commercial. 

2677             Autrement dit, il faudrait que, disons, 30 pour cent des revenus proviennent de sources commerciales, et s'il y a un test commercial, ça veut dire que le canal en question est écouté parce qu'ils peuvent vendre de la publicité.

2678             MR. SMITH:  I think we would be happy to take these ideas away and see if we can develop them further and put a more thorough response in reply around, Commissioner. 

2679             It is somewhat difficult to see how our views as to the relaxation of regulation and the elimination of any of the access rules, our position on genre exclusivity or removal of it, and our position on must‑carry status only being accorded to the minimum of the basic service, is to see how those views can be reconciled with such a scheme. 

2680             So think we are probably at odds with the Commission to some extent but we will take it away and we will put some material in in our reply round to try to find a way forward for that.

2681             COMMISSIONER MORIN:  Thank you.

2682             MR. SMITH:  Any of my colleagues have anything to add on that?

2683             THE CHAIRPERSON:  Okay, those are our questions for you.  Thank you very much.

2684             MR. BIBIC:  Mr. Chairman, just before we step down.

2685             Peter Grant raised an issue yesterday with respect to CBC.  We are ready and prepared to comment to his response to us or not but I did not want to leave without putting it out there.

2686             THE CHAIRPERSON:  I assume you don't agree with Mr. Grant.

2687             MR. BIBIC:  No.

‑‑‑ Laughter / Rires

2688             THE CHAIRPERSON:  Why don't you make that a part of your written reply?

2689             MR. BIBIC:  That is fine.

2690             THE CHAIRPERSON:  Okay.  Thank you very much.

2691             So we will break for an hour.

2692             THE SECRETARY:  We will return at 1:05.  Thank you.

‑‑‑ Upon recessing at 1205 / Suspension à 1205

‑‑‑ Upon resuming at 1329 / Reprise à 1329

2693             THE SECRETARY:  Good afternoon.

2694             We will now proceed with the next presentation by Allarco Entertainment.  Mr. Chuck Allard will be introducing his colleagues, after which you will have 15 minutes for your presentation.

2695             Mr. Allard...?

PRESENTATION / PRÉSENTATION

2696             MR. ALLARD:  Mr. Chairman, Members of the Commission and staff, my name is Chuck Allard and I am the Chairman of the Board of Allarco Entertainment Inc.

2697             Before we begin our presentation this morning, I would like to introduce our team.

2698             With me today, on my immediate right, is Malcolm Knox, Super Channel's President and COO; and Mark Lewis, our legal advisor.  On my left is Thom Eggertson, Super Channel's Vice‑President, Finance and Administration; and Darrell Atherley, who is responsible for Affiliate Relations.

2699             Allarco Entertainment, which officially launched Super Channel, Canada's newest English‑language general interest national pay television licence in November 2007, thanks the Commission for this opportunity to participate in this highly important policy review of BDU and discretionary programming services.

2700             As the Commission knows, Allarco Entertainment launched Super Channel in a market with strong incumbents in the pay television sector, increasing competition from specialty services, downloading from websites and, more importantly, an apparent scarcity of channel availability at BDUs.

2701             It is precisely because of those market considerations that we felt it was important to be here today.

2702             Let me begin by sharing with you some insights about our own recent experience as a new start‑up national pay television service in a Canadian broadcasting system and our attempt to reach audiences by the BDUs.  My colleague, Malcolm Knox, will address the Commission's more specific questions in the second part of our presentation.

2703             As the Commission knows, the distribution sector reaches over 90 per cent of Canadian households and six BDUs ‑‑ Rogers, Shaw, Bell ExpressVu, Star Choice, Vidéotron and Cogeco ‑‑ control access to over 91 per cent of cable DTH subscribers.  In essence, the small number of BDUs has the capacity of life or death over new services such as ours, not to mention existing services as well.

2704             Let me be clear with the Commission.  Even with the CRTC's present must carry rules, spectrum availability with these few BDUs is not easily accessible.  These six companies, which are often vertically integrated, find themselves in a very powerful position in negotiating with independent programming services such as ours and can draw out discussions about carriage for months without any impact on their double‑digit profit margins.

2705             Before I go any further on this question, I do want to recognize one of the BDUs for its exemplary attitude in our case and that is Bell ExpressVu.  This BDU was ready and willing to provide our service with full HD and SD capacity for all six channels and have been actively marketing the service since launch.

2706             Let me get back to the other situations.

2707             In the Commission's decision licensing Super Channel, the Commission clearly stipulated we had mandatory carriage for Class 1 systems with comparable carriage of the incumbents.  We are now close to six months since the launch of Super Channel and in many cases we have been negotiating with some BDUs for 10 months or longer, yet on day one of our operations we committed to both a national advertising campaign and a very expensive programming offering.

2708             During this time we have had to face the obvious conflicts of BDUs who allocate significant bandwidth for their own VOD, pay‑per‑view and other partially owned television interests before respecting mandatory carriage requirements of the Commission.

2709             We estimate the delays we have had to bear for comparable carriage by BDUs in full contempt and disregard for the Commission's decisions will have cost us over $12 million in the start‑up year alone.  We have also noted that many BDUs asked the Commission to eliminate all access rules in favour of a preponderance formula.

2710             Needless to say, we vehemently reject this proposal for the following reasons.

2711             In Phase I of this proceeding BDUs have cited channel capacity limitations prior to full digital transition in 2013 as a key factor limiting the launch of additional Canadian services.  Allarco Entertainment's application for a pay television licence was predicated on providing multiple channels of high definition programming at launch.

2712             However, after consultation with BDUs we determined only two fully dedicated HD channels were feasible at launch in light of channel capacity concerns.  In many cases, we found BDUs were unwilling to dedicate one or two HD channels to our service, even though this is a key selling point to consumers.  It seems offering Super Channel in a manner comparable to the incumbent pay television service means the same retail price, but not necessarily all the multiplex channels.

2713             Yet during this same period of time, despite claims of a lack of channel capacity, BDUs launched HD versions of U.S. channels which provide primarily up converted programming content.  Those U.S. channels include U.S. Cable News Network, U.S. independent over the air stations, Speed and other foreign discretionary services.

2714             Such examples ‑‑ and there are many more ‑‑ demonstrate the blatant self‑serving attitude the BDUs have demonstrated in dealing with licensed Canadian services and foreign satellite services.  Close to six months after launch, and having a national licence which states "must carry", Super Channel is still not available on Star Choice, Shaw Cable, Vidéotron, EastLink, Telus, MTS and a number of Class 1 CCSA members, almost 50 per cent of potential customers across the country.

2715             On the key question of dispute resolution, we totally disagree with the proposals of BDUs who want to eliminate this procedure.  We are well placed to understand firsthand why they would prefer this.  We recently had to use a dispute resolution process with two of the BDUs to have them respect the Commission's regulations about must carry.  This process has proven to be laborious and time‑consuming, but we have to ask ourselves what recourse would we and the Commission have if such a dispute resolution process did not exist.  Licensees would be even more at the mercy of a handful of BDU gatekeepers.

2716             Based on our recent experience we strongly recommend the Commission ask the government to revise the present broadcast legislation to give the CRTC more powers, not less, in the area of dispute resolutions.  The Commission should have the powers much like the FCC in the United States and Ofcom in Britain which both can impose heavy fines on parties that do not respect regulations.

2717             In addition, the Commission should have the means to determine monetary compensation for the losses of licensees which face BDUs that don't respect Commission decisions.

2718             Furthermore, we strongly recommend the Commission carefully examine many of the provisions of BDU contracts.  It is not uncommon for a BDU to impose a variety of onerous obligations on a programming service which is seeking carriage, marketing subsidies, transmission costs and other obligations which have the potential of seriously impeding the entry of Canadian services.

2719             To our knowledge, foreign services have not been subjected to similar provisions in their contracts.  In addition, BDUs will use most‑favoured‑nation provisions in their contracts with Canadian services to ensure they don't miss an opportunity to extract extra revenues from programming services.

2720             In addition, we would like the Commission to review the question of audit rights with the BDUs.  In Broadcasting Notice 2005‑34, the Commission commented on audit rights, stating:

"The Commission expects future agreements negotiated between programming services and BDUs either to incorporate the audit terms set out above or to negotiate mutually agreed terms on the matters covered in this Notice."

2721             In our negotiations with a number of BDUs, they have refused to include audit rights and agreements, which leads us to suggest the Commission amend the existing BDU regulations to provide programming services with unequivocal audit rights to subscriber information.

2722             I would now like to ask Malcolm Knox to go through some of the homework the Commission gave us in preparing for this public hearing.

2723             MR. KNOX:  Thank you, Chuck.

2724             We spent quite some time examining the distribution model the Commission proposed for discussion at this hearing and we would have the following comments to make.

2725             We agree with the Commission's proposed regulatory provision on a minimum preponderance 50 per cent plus one of both services offered by distributors and services received by distributors must be Canadian.

2726             We also agree with the Commission's proposal for the composition of the basic service and the provision to offer no guaranteed access to foreign services.

2727             On the critical question of guaranteed access to a limited number of core Canadian services, we would also agree to the extent that the Commission consider Canadian pay television services as core services, providing value diversity to the broadcasting system.  In our view, one of the key elements to consider in defining core Canadian services should be the level of expenditures on Canadian programming and the exposure provided to such programming by the licensees.

2728             In the case of Super Channel, we are planning on spending more than $100 million on developing and licensing Canadian programming in our first five‑year licence period, which comes to an end in 2012.

2729             We consider this to be the kind of level of commitment that places a service in the core services category.

2730             We disagree with the BDU proposals for the elimination of genre protection.  In such a situation we would anticipate that specialty channels which are controlled by companies related to the BDUs would broaden the categories of their programming offerings and would be engaged in outfitting smaller broadcasting groups for programming rights.

2731             Alternatively, BDU‑controlled companies could obtain licences to compete with analog specialty and Category 1 services.  Here again we have an example of what could result from the elimination of must carry obligations.

2732             In our view, such a situation would result in the potential removal of Canadian programming services not owned by or aligned with BDUs, thus reducing diversity of ownership in Canadian broadcasting.

2733             Concerning the possibility of increasing the number of authorized non‑Canadian satellite services, particularly in the pay television sector, we clearly oppose such a move.  We believe the Commission should continue to be vigilant regarding requests for authorizing foreign specialty and pay services and maintain as its priority question in such cases:  What are the net benefits to the Canadian system by allowing the entry of such services and what will be the impact on the programming rights for Canadian services?

2734             Letting in such services could ultimately reduce our overall capacity to sustain a dynamic Canadian programming production industry.

2735             For example, Canadian pay television services commission, invest in and acquire in excess of $80 million a year of independent Canadian content programming primarily in drama.  The removal of the competitiveness test for entry of foreign satellite services would place Canadian services operating within those genres at an undue disadvantage.

2736             All pay and specialty and most Category 1 digital services are required to adhere to significant Canadian programming expenditures and exhibition requirements as conditions of their licence.  Canadian pay and specialty services acquire exclusive Canadian exhibition rights to non‑Canadian programming.  Most of that foreign programming is currently exhibited on U.S. services which do not presently qualify for entry into the Canadian market.

2737             In the event the Commission was to lessen or totally eliminate entry barriers to non‑Canadian services, we foresee a profound redirection of programming exhibition rights away from Canadian pay and specialty services.  Such a redirection of programming exhibition rights would be accompanied by significant audience fragmentation from Canadian services over to non‑regulated foreign programming services.  This in turn would seriously threaten both the viability of Canadian services and the livelihood of Canadian actors, producers and writers who are direct beneficiaries of Canadian programming expenditures and exhibition requirements.

2738             With regard to undue preference rules, we do not agree with proposals of the BDUs to either remove or retain existing rules which place the burden of proof with the complainant.

2739             The Commission had to call a public hearing in 2007 because it was alleged one of the BDUs was not respecting carriage rules.  We fully agree with the Commission's proposal to reverse the onus in this area and reiterate that we recommend stronger regulatory power for the Commission to deal with undue preference situations.

2740             MR. ALLARD:  Mr. Chairman and Commissioners, as I said earlier, we believe it is critical to the future success of our broadcasting system that the Commission use this hearing to set down new rules for the relationship between Canadian programming undertakings and the BDUs.

2741             The BDU providers have evolved rapidly over the years, becoming not only very profitable but also very concentrated in ownership and increasingly involved in distributing their own programming services.  We have said it before and I will repeat it again:  BDUs have the power of life or death over Canadian programming services.

2742             This should not be the case in a broadcasting system that is supposed to be regulated in the public interest, not in the interest of a small group of BDUs.  We believe it is imperative that the Commission not only continue to regulate the system but more so strengthen regulations with mandated consequences for non‑compliance, including compensation for BDUs who refuse to comply with Commission's decisions.

2743             It is our view that the Commission has to retain a strong access regime with teeth to ensure Canadian services can reach Canadian audiences as a priority over offering foreign services.

2744             The recent success of Category 1 digital networks is in large part due to the Commission's clear access policies.

2745             Deregulation is a popular term in many circles, but we have to remember that the success of our Canadian broadcasting system, which is the envy of many countries, has been built on ensuring Canadian programming services could compete within our own market while showing an openness to the world.  We caution the Commission to not jeopardize a system that is very fragile in the sole interest of further increasing the power and profit margins of BDUs.

2746             The U.S. Treasury Secretary and former Goldman Sachs CEO, Henry Paulson, was quoted in Market Watch a few weeks ago calling for more regulation, not less, of the financial markets.  In his view, the excesses of deregulation in the U.S. have now created the worst financial crisis in a generation, threatening the health of the U.S. economy, the savings of millions of Americans and the survival of some of the biggest financial institutions in the world.  Such statement should give us the shivers.

2747             Let us remember our Canadian broadcasting industry is only healthy today because of years of careful crafting of regulations which balance the diverse interest of all industrial sectors involved.

2748             This completes our oral presentation and we look forward to responding to any questions you may have.

2749             THE CHAIRPERSON:  Thank you very much for your presentation.

2750             On page 9 you say:

"In the event the Commission was to lessen or totally eliminate entry to non‑Canadian services, we foresee a powerful redirection of program exhibition rights away from Canadian pay and specialty services."

2751             Has anybody put that idea forward?

2752             I mean, isn't this a bit of a smokescreen?  I'm not aware of anybody suggesting that we eliminate entry barriers for non‑Canadian services, not even the BDUs.

2753             MR. KNOX:  Well, I'm sure the BDUs wouldn't be promoting that, particularly if they want to bring in more U.S. services.

2754             In our view, Canadian programmers license programming from program suppliers in the United States.  Those program suppliers also license programming to U.S. services who buy U.S. rights which are of much greater value than Canadian and, as a result, Canadian broadcasters acquire programming that is produced in the States, and the U.S. services have similar programming.

2755             If we were to allow unbridled entry without any oversight, the concern is the U.S. services could start to come in and in the early years while there would be an issue with the programming rights, over time the U.S. services could start to acquire that programming from the U.S. program suppliers.  They could buy U.S. and Canadian rights and then this programming would just not be available for some services in Canada.

2756             THE CHAIRPERSON:  I understand that point, but I mean my whole point was you are raising this here.  I have read most of the submission and I don't believe I have seen anybody suggesting that we eliminate any kind of entry barrier to foreign services.

2757             MR. KNOX:  Well, I guess this is in the area of the genre protection and just our interest in making sure that this ‑‑

2758             THE CHAIRPERSON:  So you are just anticipating that this might lead us to the situation.  Is that the idea?

2759             MR. KNOX:  Well, that's true.  And then there are some other areas ‑‑ there are some programming services that seem to be creeping into Canada.  For instance, the service Setanta seems to be a foreign service ‑‑

2760             THE CHAIRPERSON:  Which service?

2761             MR. KNOX:  Setanta.

2762             THE CHAIRPERSON:  Yes...?

2763             MR. KNOX:  It's a foreign service I believe from ‑‑

2764             MR. LEWIS:  I believe it's based ‑‑ I will comment on that.

2765             It's a service that I believe originates in Great Britain.  It is a soccer/football channel.  There already are Category 2 services in Canada that are Gold TV, and I believe there is another one, which occupy that genre, and yet these services are starting to creep in via VOD and yet there are linear services in the U.S.

2766             Setanta is a good example because we have just encountered a couple of situations where it has leapfrogged over Super Channel in being launched on VOD in the U.S.  It is a satellite service.  It is a monthly subscription service, and it appears 100 per cent of the programming is identical on VOD.  So it doesn't even seem to be a VOD service.

2767             THE CHAIRPERSON:  How is it creeping into Canada?

2768             MR. LEWIS:  I believe that it is being pulled off a U.S. satellite.  It is being sold by several BDUs on a monthly subscription basis under the guise of being video on demand.

2769             THE CHAIRPERSON:  I see.  Okay.

2770             The other thing I notice, after two days of hearing, nothing about fee for service.  You haven't even mentioned the word.

2771             What is your view on fee for service?

2772             MR. KNOX:  Thank you.  Fee for service for the over the air broadcasters is, frankly, a much bigger issue for them than it is for us.

2773             From our perspective, our concern as a pay service that is purchased after consumers purchase the basics, or basic tier, our concern is that over the air fees could increase the cost of the basic service and make it more expensive to eventually buy through and purchase our service.

2774             So our concern about basic and over the air is that it not be too large a service and not too expensive and create somewhat of a barrier to entry for purchasing pay and specialty.