ARCHIVED -  Decision CRTC 85-703

Decision

Ottawa, 27 August 1985

Decision CRTC 85-703

M1 Rural Television Cablesystems Inc.

Adams Cove, Blackhead, Broad Cove, Small Point, Kingston, Aspen Cove, Avondale, Badger, Bay de Verde, Bay L'Argent, Benoit's Cove, Birchy Bay, Bonne Bay, Burnt Point, Gull Island, Northern Bay, Long Beach, Campbellton, Cape Broyle, Carmanville, Centreville, Wareham, Chance Cove, Clarke's Head, Victoria Cove, Conception Harbour, Cox's Cove, Dildo, New Harbour, Blaketown, Dildo South, Old Shop, Spread Eagle, Eastport, Embree, Fermeuse, Ferryland, Frederickton, Green's Harbour, Halfway Point, Hampden, Hant's Harbour, Harbour Main, Heart's Delight, Heart's Desire, Holyrood, Horwood, Irishtown, King's Point, Lark Harbour, Lawn, Little Burnt Bay, Lobster Cove, Rocky Harbour, Lower Island Cove, Lumsden, McIvers, Marysdale, Meadows, Gillams, Noggin Cove, Norris Arm, Norris Point, Ochre Pit Cove, Western bay, Old Perlican, Pilley's Island, Point Leamington, Port Blandford, Portugal Cove South, Renews, Robert's Arm, Shoal Harbour, Milton, George's Brook, Southern Harbour, St. Bernard's, St. Vincent's, Summerford, Summerside, Sunnyside, Terrenceville, Tors Cove, St. Micheal's, Bauline, Trepassey, Trinity, Trinity East, Triton, Trout River, Virgin's Arm, Carter's Cove and York Harbour, Newfoundland; Abrams Village, Wellington, Alberton, Georgetown, Mount Stewart, Murray River, O'Leary, Souris, St. Louis and Tignish, Prince Edward Island; and D'Escousse, Eskasoni, Joggins, L'Ardoise, New Germany, Port Bickerton and River Hebert, Nova Scotia - 851237800

Omni Cablevision Limited Summerford, Newfoundland - 851398800

Eastern Cable LimitedDildo and New Harbour, Green's Harbour and Southern Harbour, Newfoundland - 851290700 - 851288100

Following a Public Hearing in Gander, Newfoundland on 26 June 1985, the Commission denies the applications by M1 Rural Television Cablesystems Inc. (M1), Omni Cablevision Limited (Omni) and Eastern Cable Limited (Eastern) for licences to carry on broadcasting receiving undertakings to serve the communities noted above.

The M1 Application

The M1 application proposed to provide service to a total of 87 small, core-market communities (71 in Newfoundland, 9 in Prince Edward Island and 7 in Nova Scotia) with a total number of potential subscribers of slightly under 20,000. M1 committed itself to provide service to all communities within 12 to 16 months of receiving a licence and based its financial projections on achieving an average penetration rate of 70% in the first year of operation.

In addition to the priority services required to be carried by regulation, the applicant proposed to distribute the signals of CHCH-TV Hamilton, CITV-TV Edmonton. WTVS (PBS) WJBK-TV (CBS), WDIV (NBC) and WXYZ-TV (ABC) Detroit, Michigan, received via satellite from the Canadian Satellite Communications Inc. (CANCOM) network, the Atlantic Satellite Network (ASN), The Sports Network and the MuchMusic Network.

The applicant indicated at the hearing, however, that the proposed service package was flexible and could be tailored to meet the needs of any particular community. If, for example, an area wished to receive a French-language service, the TCTV service from CANCOM could be substituted for one of the other CANCOM signals.

M1 proposed to charge a maximum monthly fee of $23.50 and intended to provide the first two months of service free-of-charge to all subscribers in order to facilitate the marketing of its service. As a further marketing tool the applicant proposed no charge for installation.

The applicant planned to have one service person for every 1,000 subscribers as well as one administrative clerk and one service vehicle for every 1,500 subscribers. The systems would have been administered and serviced from regional offices located in each province.

The ownership structure of M1 was to consist of Mr. Joseph Shannon (38.25 %) and CANCOM (12,75%) with the remaining 49% to be owned by the purchasers of 18 units of shares to be made available at $100,000 per unit. If all of the remaining 49% of the shares could not be sold through private placement, Mr. Shannon and CANCOM committed themselves to complete the capitalization of the corporation through the purchase of additional shares in the same 3:1 ratio. Most of the financing for the M1 proposal was to come in the form of a $3.8 million bank loan which was subject to certain conditions including Commission approval to serve all 87 communities applied for by M1 and the raising of the additional capital required through the sale of the 18 units of shares noted above.

The applicant argued that the "regional" licensing concept of its proposal was in line with recommendation 31 of the report of the Task Force on Access to Television in Underserved Communities entitled "The Costs of Choice" (The Klingle Report) which stated:

 "The CRTC should encourage regional applications to provide service to rural areas and groups of small unserved communities."

Mr. Pierre Morrissette, President and Chief Executive Officer of CANCOM, pointed out that CANCOM's principal mandate continues to be to provide service to underserved core market communities throughout Canada. He stated that when it was originally licensed in 1981, CANCOM's projections for its potential subscriber base for core-market communities had been 340,000 and that these projections had since been revised to approximately 1,000 communities with 400,000 potential subscribers.

Mr. Morrissette commended the many groups and individuals who had been licensed to distribute the CANCOM services to core market areas during "phase one" of CANCOM's existence. Despite this effort, however, he stated that, to date, only 385 communities comprising some 170,000 subscribers were receiving the CANCOM services in the core market. Mr. Morrissette said that many of the communities which still lack service are simply not viable by themselves and concluded that:

  ... the only way to develop communities which are not viable on the stand-alone basis is to group them with other viable communities, and through economies of scale, through a volume approach in purchasing, in administration ... would result in developing these communities which, based on traditional methods, cannot be built.

He stated that CANCOM already has plans well under way for "phase two" of its extension of service to an additional 700 communities across Canada, including those which M1 proposed to serve, and that a "phase three" involving the extension of service to very small communities with as few as 75 households would follow.

In determining the best method of extending service to so many underserved communities in Atlantic Canada, CANCOM considered several options. It determined that the current method of relying on local entrepreneurs and groups to retail the service had reached a limit, since many of these communities are not viable on a stand-alone basis. Mr. Morrissette stated:

 ... the reality of that particular effort is that it has been effective in the first phase of providing for the extension of services, and that CANCOM's current level of subscribers of approximately 170,000 subscribers, would likely plateau at a level of approximately 225,000 to 250,000 subscribers should this approach continue.

CANCOM also considered the option of serving these communities on its own, but rejected the idea in view of the importance of participation at the regional level. As Mr. Morrissette explained:

 One of the major keys to success in this whole adventure are skills at the regional level to build on budget, on schedule, and to manage, according to plan, in a very efficient way these small community systems.

CANCOM concluded that the best approach for the M1 proposal would be a joint venture "with a dominant shareholder at the regional level".

Mr. Morrissette added that the regional concept proposed in the M1 application was, in his view, the only practical means for CANCOM to achieve maximum penetration of its core market, which, be said, was essential for the future viability of CANCOM.

Mr. Morrissette argued that the advantages of CANCOM's participation in the M1 regional proposal included significant cost savings due to coordinated purchasing of equipment, the utilization of CANCOM's technical expertise gained since it was first licensed in 1981, its ability to raise financing for such a major undertaking, and access to the large data base on small communities in Canada which CANCOM has created since 1981.

The applicant indicated that the current M1 proposal constituted "phase two" of the extension of service to small underserved communities. In this "phase two", M1 stated that the efficiency and viability level of the communities therein was at a threshold of some 100 households. Mr. Morrissette added that:

 We have an entire unit in our company that is constantly working on finding ways and solutions to bring that (level) down to 75 (households).

Extension to these smaller communities would constitute "phase three" of its plans to extend service and the applicant indicated that if the current application were approved, M1 or a similar organization would in the near future file applications to serve these very small communities. The proposal would include a group of villages on the Labrador coast.

Interventions to the M1 Application

More than 60 interventions were submitted with regard to the M1 application, indicating the high degree of interest shown in the application and in the desire for additional broadcasting services in the smaller communities throughout Atlantic Canada, particularly in Newfoundland.

A great number of the "non-appearing" interventions received supported the M1 application, although some expressed concern about the high monthly fee proposed and the lack of local involvement, particularly in Newfoundland where most of the M1 systems would be located.

Twelve (12) interventions were supported by oral presentations during the hearing; of these, 11 were opposed to the M1 application and one was in support of it. The 11 appearing interveners in opposition were:

Newfoundland

(1) The Newfoundland and Labrador Association of Cable Television Operators

(2) Avalon Cablevision Limited

(3) Central Cable Systems Ltd.

(4) Gateway Cable TV Limited

(5) Shellbird Cable Limited

(6) Representatives of Leg Cable Systems

(7) Phoenix Cable T.V./A.J. Gale Ltd.

(8) Trinity Communications Ltd.

Prince Edward Island

(9) La Société Saint-Thomas d'Aquin - La Société Acadienne de l'I.P.-E.

(10) Island Cablevision Ltd.

Nova Scotia

(11) North Nova Cable Limited

Appearing in support was Mr. Anthony McCarthy, representing the Town Councils of Halfway Point, Benoit's Cove, John's Beach and Frenchman's Cove, Newfoundland.

Madame Darlene Poirier, who spoke on behalf of the Acadian community of Prince Edward Island, expressed concern that the M1 application, if approved, would contribute to further anglicization of the Acadian people, since it did not propose any French-language service, such as TCTV, or a community channel. Mme Poirier said that there was now only one French-language service available in this area. In this regard, the Commission has noted M1's statement that its proposed service package was flexible and that it would substitute the TCTV service for one of the other CANCOM signals if requested to do so by a particular community.

Madame Poirier added that the M1 application proposed to serve only Abrams Village - Wellington, and that other Acadian communities would not be served. Mme Poirier said that a recently-established cooperative group would be submitting an application in the near future which would propose to offer a better service to Acadian people on Prince Edward Island.

The other appearing interveners opposed the application for a variety of reasons.

One of the major concerns the cable operators expressed about the M1 proposal was the direct participation of CANCOM in the application. They argued that since CANCOM was in effect the wholesaler" which provided them, as cable licensees, with the bulk of their service package, it would constitute conflict of interest to licence M1 as it would allow CANCOM, in essence, to become a "retailer" of its own service and, thereby, perhaps it would be in a position to give preferential treatment to the M1 systems at the expense of its other core market affiliates.

Further, while acknowledging that Mr. Shannon was an experienced and respected operator of small cable systems in Nova Scotia, the interveners expressed concern that CANCOM had not included any local Newfoundland participation in the M1 application, despite the fact that 71 of the proposed cable systems were in that province. Many of the interveners expressed fears that approval of the M1 proposal would effectively "cap" any future expansion plans of the local operators and pointed out that applications to serve a number of the communities in the M1 proposal had already been filed with the Commission by local operators and that others were in the process of being filed.

The interveners were confident that, given the opportunity, they could provide service to those communities in the M1 proposal more quickly, or as quickly as M1, at a lower cost to subscribers and with increased local representation. On this point, Mr. Graham Wheeler, representing Central Cable Systems Limited, went so far as to state:

 I think if you took all the cable operators that are here today, and a few more besides, and put them in a room, and said there are 87 communities - 71 here in Newfoundland that have to be served, then give us two hours and we could decide who was going to build what and there would be no animosity or anything afterwards over it.

In a similar vein, Mr. Aiden Dunne, speaking on behalf of the Newfoundland and Labrador Cable Television Association said, in part:

 ... I can assure you that the Newfoundlanders can do it. We have the money and the technical resources...

The Newfoundland cable operators also questioned M1's implementation schedule which provided for a period of 12 to 16 months after Commission authorization to serve all the communities for which it had applied. This objection was based on their personal experience with construction difficulties in Newfoundland in the winter.

The opposing interveners were, generally, of the opinion that the Commission should have issued a call for competing applications when the M1 application was received in order to allow local operators and other interested parties an opportunity to submit applications to provide service. They also pointed out that the Commission has already granted licences to serve a number of the communities included in the M1 proposal. The subject of the issuance of a call for applications and the issue of existing licensees in some of the M1 proposed communities will be discussed in a subsequent section of this decision.

The interveners also argued that the M1 application was much broader in scope than was intended by recommendation 31 of The Klingle Report regarding "regional" applications.

During the course of their presentations at the hearing, many of the interveners also questioned some of the specifics of the M1 application relating to population density and miles of cable required to wire certain communities. The interveners also stated that from their local experiences they considered that M1's projections of 70% penetration in the first year, given the proposed monthly fee of $23.50, were totally unrealistic.

In addition, the interveners felt that M1's proposals for servicing its systems were inadequate given the long distances to be covered and taking into consideration the harsh realities of winter in the Atlantic Provinces, particularly in some parts of Newfoundland.

Decision of the Commission

The primary issue at the Gander hearing was very aptly summarized during the opening remarks by Commissioner Jim Robson, Chairman of the Hearing, when he stated:

 What this hearing is all about is how cable television service can best be extended to a large number of smaller core communities, how quickly this can be achieved, at what cost to the subscriber ... the Commission has two options to consider: can the local cable operator and entrepreneur best achieve the objective of serving those small core communities that may be spread around the general vicinity of his main base of operation; or, does the larger corporate entity, as characterized in this instance by the M1 application, ... represent the best means of serving a great number of small communities spread across a wider area and within a shorter time span.

While denying the M1 application, the Commission finds considerable merit in the overall proposal, particularly since it represents an imaginative attempt to serve a large number of communities, many of which are not viable on a "stand alone" basis because of location and population density. The Commission also appreciates the long-range planning involved in the M1 application with regard to extension of service to the "phase three" communities, since it is anxious that these communities also receive the range of broadcasting services now available in larger communities generally across Canada.

The Commission wishes to make it clear that it does not rule out approving a broad "concept" of extension of service such as that proposed by M1, provided it can be satisfied that any such proposal has the necessary financing and resources to accomplish such an extension in a reasonable period of time and at an affordable cost to subscribers. The Commission also recognizes the innovative financing scheme proposed by M1 as well as the relationship envisaged for the ownership of the company.

Primary among the reasons for denying the current M1 application is the Commission's concern over the extent to which the proposal could be implemented should M1 not be granted a licence to serve all 87 communities, because of the interlocking nature of the application.

When discussing this matter with the applicant, the Commission pointed out that it has already licensed other parties to provide service in the communities of New Germany, Joggins and River Hebert, Nova Scotia; Georgetown and Souris, Prince Edward Island; and Carmanville, Noggin Cove, Shoal Harbour, Milton, George's Brook and Trepassy, Newfoundland.

In view of the Commission's general policy of not issuing two licences for the same area and the economic disadvantages of doing so, particularly in small communities where viability is a major concern, the Commission asked M1 what impact, if any, the deletion from its application of any or all of the communities which are already licensed would have on the proposed financing and viability of the overall proposal. In response the applicant indicated that it would be difficult to assess what the impact might be without a specific scenario to work from, i.e., without knowing exactly which communities were to be excluded.

It became clear from further discussion at the hearing, however, that the financing and viability of M1's proposal was predicated upon approval to serve all 87 communities. In this regard the applicant stated:

 If the more viable of the 87 communities are excluded, then clearly you get the same kind of margins, et cetera, if you take off the top to get back to a constant you will have to look at taking off the bottom. The bank financing is contingent upon CRTC approval to operate ... to obtain the licences for the systems that we have applied for.

For example, when asked what impact the deletion of the communities of Souris and Georgetown might have on the viability of extending service to the other 7 communities applied for in Prince Edward Island, the applicant indicated that without these communities, particularly Souris, it was doubtful that the other 7 P.E.I. communities could be viably served by M1.

The Commission also notes that the financing documents submitted by the applicant made it a condition that M1 receive Commission authorization to serve all 87 communities. The applicant indicated that it would be obliged to renegotiate both its bank financing and private placement of shares if it were licensed to serve fewer than 87 communities. The delay resulting from such renegotiation of its financing would in turn affect the applicant's proposed implementation schedule, leaving some doubt as to whether, or when, service would be provided to those communities not viable on a "stand-alone" basis.

While appreciating the innovative marketing approach proposed by M1, the Commission is concerned that the average first-year penetration rate (70%) projected by the applicant may be too optimistic, when compared with the actual experience of considerably lower penetration rates encountered by the local cable operators, particularly in view of the monthly fee proposed ($23.50) and the depressed economic conditions in some areas of Newfoundland.

Similarly, the questions raised concerning the mileage figures used in the M1 application for the communities of Trepassey, Ferryland and Holyrood and the actual household counts in some other areas are, in the Commission's view, sufficiently serious as to leave a doubt that there may be similar inaccuracies in the application with respect to other communities, with a consequent effect on the overall costs of implementing the proposal.

The Commission has considered the issue raised by the opposing interventions from the local cable operators that no call was made for competing applications. In this regard, however, the Commission notes that, in addition to two general calls for applications to provide CANCOM service to all parts of Canada, more than 10 calls have been made, since April 1981, for applications to serve core market communities in the Atlantic Region, particularly Newfoundland.

The Commission is sensitive to the interveners' arguments that in 1981 there were fewer than 10 cable licensees in Newfoundland whereas there are now, following the introduction of CANCOM-originated services, 49 licensees. Because of the experience and financial base gained in the past few years, the local operators consider that they are now in a position to apply to extend service to the smaller, more remote communities in the province.

The Commission also acknowledges the fact that, in the past, high interest rates coupled with high pole rates have been an impediment to the expansion plans of many licensees and potential applicants. Now, however, interest rates have subsided and levelled off and the problem of pole rates appears to have been alleviated in Newfoundland and Prince Edward Island.

For the reasons mentioned above, the Commission has determined that it is in the public interest to deny the M1 proposal, and to make a call for applications to serve those areas contained in the M1 application which were considered at the Gander public hearing, excluding those communities which other parties have already been licensed to serve. The specifics of this call will be addressed in the concluding section of this decision.

This decision does not preclude M1 from submitting a new application, or applications, for a licence, or licences, to serve those communities which are part of the call, excluding the communities already licensed, as noted above. It will also give other interested parties an opportunity to apply.

Most importantly, while regretting that the denial of the M1 application means that many small communities in the Atlantic Region will remain underserved for the time being, the Commission is convinced that, in the long term, this decision is in the public interest in that the new call should generate a better assessment of the market, and, possibly a variety of new concepts in the applications submitted and ensure that these underserved areas will finally receive an equitable level of service at an affordable cost.

The Omni and Eastern Applications

Applications by Omni Cablevision Limited for a licence to serve Summerford, Newfoundland and Eastern Cable Limited to serve the communities of Green's Harbour, Southern Harbour, Dildo and New Harbour, Newfoundland were also considered at the Gander hearing. These applicants were competing with the M1 application for these areas.

Phoenix Cable TV/A.J. Gale intervened at the hearing in opposition to the Omni Proposal on the grounds that it operated cable systems in the vicinity of Summerford and it intended to file an application to serve this area.

With regard to its applications, Mr. Philip Keeping of Eastern Cable Limited stated:

 During the normal course of events, I would have applied ... to build these satellite systems during the fall of 1985 and on into 1986; however, there were persistent rumours of an application by CANCOM and some partners to build a large number of systems in communities in the Atlantic provinces. In order to keep my own goals and aspirations alive, I submitted applications and documentation to your Commission on March the 22nd 1985...

The Commission notes that Eastern has recently been licensed to serve 11 other communities in Newfoundland (Decisions CRTC 85-620 to 85-623, dated 31 July 1985), all of which provide for implementation within short time frames. Accordingly, implementation of the systems contained in the Eastern applications considered at the Gander hearing may have been delayed in any event in view of the licensee's other commitments.

In view of the foregoing circumstances, and in light of the Commission's wish to evaluate the best means of providing service to the greatest number of communities possible in the context of the applications which will be received in response to its new call, the Commission considers that it is in the public interest to deny the Omni and Eastern applications. Omni and Eastern are, of course, not precluded from submitting new applications in response to the call.

Call for Applications

In conjunction with the release of this decision, the Commission has today issued a call for applications (Public Notice CRTC 1985-195) to serve all the communities contained in the M1 application considered at the Gander hearing, with the exception of those areas which have already been licensed to be served by other parties. In accordance with this call, applications most be submitted to the Commission by 31 October 1985. The Commission will schedule the applications for a public hearing at the earliest possible date.

While realizing that some of these areas are not viable to be served on a "stand-alone" basis, the Commission reminds potential applicants that its objective is to provide, quickly and economically, service to all of the communities involved, and not just those communities which may be more viable or easier to serve. This objective will be a primary consideration of the Commission when it hears the applications received in response to its call.

The Commission reiterates its disappointment that so many communities in Atlantic Canada remain underserved, despite several calls for applications to provide service and hopes that the response to today's call will lead to the final resolution of a very serious problem.

Fernand Bélisle Secretary General