|
Decision
|
|
Ottawa, 31 March 1988
|
|
Decision CRTC 88-214
|
|
J. & K. Enterprises Ltd. Nackawic and Hartland/Somerville, New Brunswick - 872989900 - 872990700
|
|
Woodstock Community T.V. Ltd. Woodstock, Canterbury and Centreville, New Brunswick - 872993100 - 872991500 - 872992300
|
|
Following a Public Hearing in Moncton on 25 January 1988, the Commission approves applications by J. & K. Enterprises Ltd. (J & K), licensee of the broadcasting receiving undertakings serving Nackawic and Hartland/ Somerville, and by Woodstock Community T.V. Ltd. (Woodstock), J & K's wholly-owned subsidiary and licensee of the broadcasting receiving undertakings serving Woodstock, Canterbury and Centreville, for authority to transfer effective control of the respective licensees to N1 Cable TV Ltd. (N1).
|
|
These transactions will be effected, in the case of J & K, through the transfer of 5,000 common shares (100%) from H.B. Kirkpatrick, Kirk Holdings Ltd., T.B. Kirkpatrick and M.A. Kirkpatrick to N1 and, in the case of Woodstock, through the transfer of 110 common shares (100%) from J & K, H.B. Kirkpatrick, T.B. Kirkpatrick and M.A. Kirkpatrick to N1.
|
|
J & K has been providing cable television service to the Nackawic area since receiving its licence in 1969 and currently serves approximately 3,000 subscribers, including those in Woodstock. Mr. Howard Kirkpatrick has been the sole owner of J & K since 1984.
|
At the hearing, Mr. Kirkpatrick explained that, as principal of Woodstock High School, he had found it difficult to fulfill the responsibilities associated with the day-to-day operation of the licensee companies and had consequently enlisted the assistance of his son to assume a major portion of these responsibilities. When his son announced his intention of returning to university in the fall of 1987, Mr. Kirkpatrick further explained, "I therefore decided that I would seriously consider any offer to purchase the shares of my company, providing the potential purchaser was qualified and willing to properly serve the licensed areas, in particular with respect to the completion of the Hartland system", authorized in CRTC Decision 87-382.
|
|
It was at that time that, based on Mr. Kirkpatrick's knowledge of N1's success in providing cable television service in Newfoundland, he hired N1 to manage his cable systems, a responsibility which it has undertaken from 1 September 1987 to the present time. Impressed with the efficiency of N1 in administrating the two companies, particularly in its rapid completion of the Hartland system, Mr. Kirkpatrick decided to sell J & K to N1.
|
|
As the licensee of over 200 small cable systems in the province of Newfoundland, N1 has realized significant success with its regional concept of providing cable service. The ownership structure of N1 consists of Eastern Cable Ltd. (37%), a cable operator licensed to serve a number of communities in Newfoundland, and CANCOM (15%), with the remaining 48% held by C1 Cablesystems Inc., a financing vehicle designed to raise capital through sales of shares to private investors.
|
|
N1 proposes to purchase 100% of the outstanding shares of the licensee companies for $1,065,000, through a bank loan of $375,000, a vendor take-back loan of $500,000 and shareholder equity in the amount of $190,000 from C1 Cablesystems Inc. Based on the evidence filed with the application, the Commission has no concerns with respect to the availability or adequacy of the required financing.
|
|
The Proposed Benefits
|
|
As stated in a number of decisions relating to applications for authority to transfer effective control of broadcasting undertakings, and because the Commission does not solicit applications for such transfers, the onus is on the applicant to demonstrate to the Commission that the application is consistent with its criteria for assessing applications involving changes in ownership or effective control, and that it is the best possible proposal under the circumstances.
|
|
The Commission reaffirms that the first test any applicant must meet is that the proposed transfers of ownership or control yield significant and unequivocal benefits to the communities served by the broadcasting undertakings, to the Canadian broadcasting system as a whole and that it is in the public interest.
|
|
The benefits identified in the applicationd and addressed at the public hearing are outlined below.
|
Citing the experience with these communities and their service needs that N1 has gained while managing these cable systems over the past six months, Mr. Philip Keeping, President of N1 stated that approval of these applications would provide N1 with the opportunity to make needed service improvements to the systems, and enable the company to establish a solid base of operations in New Brunswick. In this regard, Mr. Keeping referred to N1's regional application to provide cable service to 146 small communities in the province, also considered at the Moncton hearing and dealt with in Decision CRTC 88-213 of today's date.
|
|
He further outlined N1's plans, should the regional application be approved, to establish Woodstock as the central service office for the entire province, with a sub-office in each of the northeast and southern regions. Mr. Keeping emphasized however, that these applications for transfer of control were completely separate from the regional application and that N1 had every intention of carrying out these transactions and their related commitments, even in the event that the regional proposal were denied.
|
|
In terms of service improvements, N1 outlined a number of proposed initiatives, at an estimated total cost of $168,000. These include the upgrading of cable plants by the replacement of trunk amplifiers and line extenders to increase the channel capacity from 12 to 30 at an estimated cost of $65,000 for the Woodstock system and $30,000 for the Nackawic system; the expansion and upgrading of the head-ends for both systems and the addition of at least five television services, both Canadian and foreign, at an estimated cost of $35,000; extensions of the service area at Canterbury and Woodstock to serve an additional 180 subscribers at an approximate cost of $20,000; and the upgrading of the community programming service, including the acquisition of an additional camera, sound system and character generator at a cost of $10,000 at Woodstock, combined with additional staff assistance for technical and programming support, estimated at about $8,000 at Nackawic.
|
|
In terms of intangible benefits, Mr. Keeping pointed to the considerable success that N1 has achieved with its regional model in Newfoundland and the similarities it has encountered between the needs of small communities in Newfoundland and those in New Brunswick. In addition, the economies of scale afforded by the regional concept would enable the communities served by these two systems to benefit from N1's administrative efficiency, as well as the expeditious implementation of any improvements that it determines to undertake.
|
|
More specifically, Mr. Keeping noted N1's plans to hire two full-time technicians to maintain the Woodstock and J & K systems, as well as additional staff to assist community groups in making further use of the community channel. As outlined by Mr. Keeping, these initiatives, together with the improvements that the licensee has already implemented since enlisting the assistance of N1 namely, providing subscribers with access to a toll-free telephone line, mobile phones in service vehicles and a computerized billing system, would improve the efficiency and speed with which the staff can respond to subscribers' service and information requests.
|
|
The Commission has taken note of the statement made by N1 that no additional rate increases would result directly from this sale and that "the only foreseeable increases planned in subscriber revenue would be the inflationary increases on an annual basis."
|
|
In relation to the foregoing, the Commission reiterates its long-standing policy that subscribers should not be required to pay higher fees merely because the ownership or control of a cable television system has changed hands and, as such, the Commission views N1's stated assurances in this regard as being particularly important.
|
|
The Commission acknowledges the intervention filed by Fundy Cable Ltd. (formerly Fundy Cablevision Ltd.) (Fundy) in opposition to these applications. In its written submission and as reiterated at the hearing, Fundy indicated its concern that N1's management of J & K and Woodstock contravened the terms of the companies' licences and could be construed as an effective takeover of the effective control of these undertakings "prior to any CRTC public hearing or consideration". Further, Fundy objected to CANCOM's shareholdings in N1, in light of its role as a supplier of programming services for remote and underserved communities.
|
|
Fundy also noted that it had entered into an agreement to purchase the assets of the Woodstock and Nackawic cable systems, which had been denied by the Commission in Decision CRTC 82-871, and that should the Commission deny the applications presently before it, Fundy would immediately submit an offer to purchase the systems.
|
|
In response to the contention that the substance of N1's management agreement contravened the terms of the licences, Mr. Kirkpatrick stated that the agreement stipulated that N1 was responsible to the Board of Directors of each of Woodstock and J & K and that N1 was limited in its ability to execute and deliver any documents, to make any commitments or initiate any other acts on behalf of either company unless such transactions were previously approved by the Board of Directors of Woodstock and/ or J & K, as the case warranted. Having taken note of the contents of the agreement referred to above, the Commission is satisfied that N1 has not taken over immediate effective control of the licensee companies.
|
|
The Commission's Decision
|
|
In its assessment of these applications, the Commission has noted those benefits which may not be quantifiable in terms of their dollar value, namely the benefits arising from N1's experience in providing service to communities comparable in size to those in question, its provision of improved methods for dealing with subscribers' service and information requests and its proposals to hire additional technical and community programming staff.
|
|
With respect to those benefits that are quantifiable in monetary terms, the Commission acknowledges the various improvements to be made to both cable systems, for a total expenditure of $168,000.
|
|
Further, after reviewing N1's statements at the hearing regarding rate increases, the Commission is satisfied that the maintenance and planned expansion of services to J & K and Woodstock's subscribers will not be compromised by any debt servicing incurred and in this regard, the Commission expects N1 to ensure that the subscribers will not bear the burden of the retirement of the debt arising from this transaction.
|
|
The Commission notes that the licences for the broadcasting receiving undertakings in question do not expire until 31 August 1990 and, as such, requires N1 to submit a report within twelve months, detailing its progress with respect to the implementation of the various initiatives proposed in the applications.
|
|
In light of the statements made at the public hearing and having examined the applications as submitted, the Commission has concluded that the parties involved have adequately demonstrated that the proposed share transfer is in the public interest and that the benefits to the communities in question are commensurate with the size of the transaction, the viability of the undertakings, the responsibilities involved and the resources available to the applicant.
|
|
Fernand Bélisle
Secretary General
|
|
|