request for a policy direction pursuant to section 7 of the broadcasting act (final)

7/31/2019 Request for a Policy Direction Pursuant to Section 7 of the Broadcasting Act (Final)

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Table of Contents

Page

Request for the Issuance of a Policy Direction Pursuant to Section 7of the Broadcasting Act

I. Introduction and Executive Summary ..................................................................................... 1

II. A policy direction is required in order to restore regulatory integrity and certainty................ 10

(a) The Diversity of Voices Policy................................................................................. 10

(b) The Vertical Integration Framework......................................................................... 14

(c) The Radio Ownership Policy................................................................................... 14

(d) The Benefits Policy................................................................................................. 15

III. The CRTC relied on never-before used criteria to deny the BCE/Astral transaction............ 16

IV. The CRTC does not have unfettered discretion.................................................................. 18

V. A policy direction to the CRTC is required........................................................................... 18

Appendix

Draft Direction to the CRTC (Respecting the Application of Established CRTC.......................A-1Policies to Applications for Approvals of Changes in Ownership of LicensedBroadcasting Programming Undertakings)


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I. Introduction and Executive Summary

1. This is a request by BCE Inc. (BCE or Bell) for the Governor in Council to issue a policydirection to the Canadian Radio-television and Telecommunications Commission (theCRTC or the Commission) requiring it to adhere to its existing policies with respect todiversity of voices, vertical integration, the common ownership of radio stations and thebenefits policy when it considers applications for approval of changes in effective control.

A copy of the proposed policy direction is attached as the Appendix to this document.

2. An immediate policy direction is necessary in order to restore regulatory certainty andcredibility to the Canadian broadcasting system. Ultimately and in short time, without suchcertainty and credibility, stakeholders including most certainly consumers and thosefinancially invested in Canadas communications sector will lose confidence in the abilityof the Commission and other public institutions to act in the public interest, resulting in anexodus of capital and stifling Canadas ambitions as a leader in the new digital economy.

3. Such a direction is essential in order to guide licensee companies in conducting their

regulated businesses and in planning acquisitions and divestitures within the media sector.

4. All existing regulatory certainty was eliminated when the CRTC issued BroadcastingDecision CRTC 2012-5741 (the Decision) in which it denied outright Bells proposal toacquire Astral Media Inc. (Astral) (the Transaction); a proposal that complied fully withall of the existing CRTC policies against which the CRTC itself stated the application wouldbe evaluated, namely:

(a) the Commissions policy with respect to diversity of voices (the DoV Policy); 2

(b) the Commissions regulatory framework relating to vertical integration (the VIFramework);3

(c) the Commissions common ownership policy for radio (the Radio OwnershipPolicy);4 and

(d) the Commissions policy with respect to tangible benefits (the Benefits Policy)5.

1

Broadcasting Decision CRTC 2012-574,Astral broadcasting undertakings Change of effective control,18 October 2012.

2 As set out in Broadcasting Public Notice CRTC 2008-4, Regulatory policy - Diversity of voices, 15

January 2008.

3As set out in Broadcasting Regulatory Policy CRTC 2011-601, Regulatory framework relating to verticalintegration, 21 September 2011.

4Affirmed in the DoV Policy and clarified in Broadcasting Information Bulletin 2010-341, Revised

guidelines for the application of the Common Ownership Policy for Radio, 4 June 2010.

5 Originally published in Public Notice CRTC 1989-109, Elements Assessed by the Commission inConsidering Applications for the Transfer of Ownership or Control of Broadcasting Undertakings, 28September 1989 and most recently articulated in Public Notice CRTC 1999-97, Building on Success A


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5. In the Decision, the Commission rejected outright a $3.38 billion transaction that broughtmassive consumer benefits to the Canadian broadcasting system. A policy direction isrequired in order to ensure that the CRTC does not ignore its own policy framework in thefuture and to avoid the tremendous negative impact that such conduct has on theeconomy, the broadcasting ecosystem, employees, consumers and the capital markets.

6. In the Decision, the Commission completely disregarded the very policies it has developedover the past four years to address consolidation and vertical integration within theCanadian broadcasting system. Instead of applying current policy, the Commission choseto turn back the hands of time, relying on a 1978 working paper that was developed at atime when Canadians watched 3 or 4 channels via rabbit ears; Saturday Night Feverwasthe king of the box office and Gloria Gaynors I will Survive was at the top of the charts.The result is patently absurd and deprives the Canadian broadcasting system of a modernregulatory framework that reflects the 21st century desires of Canadian consumers.

7. To be clear, BCE is not requesting that Cabinet overturn the Decision and directly approvethe Transaction.

8. But it is clear that consumers and the Canadian broadcasting system are harmed when theCRTC ignores its own well-established policies and denies a transaction based on newcriteria that did not exist at the time the proposal first came before it and that were notbrought to the attention of the parties in advance. Moreover, there was no credibleevidence on the record of the proceeding that consumers would be harmed by theTransaction. In fact, the record indicated that consumers had everything to gain from aBell-Astral merger. Despite this, the Commission denied the Transaction purportedly inthe interests of the consumer, instead of applying its own policies. More should beexpected from an independent, quasi-judicial regulator and it is evident that a policydirection is necessary to restore regulatory integrity to the review of broadcast mergers bythis Commission.

9. For example, in denying the Bell-Astral Transaction and failing to follow its own well-established policies, the Commission deprived consumers and creators of $241.3 million innew content, including:

A made-in-Canada service to compete with foreign competitors like Netflix, Appleand Google. It would be available in French and English everywhere we haverights, to all Canadians through the cable, satellite or IPTV provider of theirchoice. The service would combine the very best in Canadian and internationalmovies from Astrals pay TV services, such as HBO Canada and The MovieNetwork, with great news, entertainment and sports content from Bell Media.

A commitment to open a new national Category C French-language newschannel.

A commitment to keep local conventional news stations open until August 31,2016 including the two stations being acquired from Astral.

Policy Framework for Canadian Television, 11 June 1999 and Broadcasting Regulatory Policy CRTC2010-499, Campus and community radio policy, 22 July 2010.


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An investment of approximately $127 million in French-language content,including our $15-million partnership with iconic, Quebec-based Cirque du Soleil.

A commitment that Astral would remain intact, and that executive leadership ofBell/Astrals French and English-language media properties across Canadawould be based in Quebec.

A commitment to a condition of licence requiring compliance with the VerticalIntegration Code of Conduct, as amended from time to time.

A commitment of over $60 million in new funding to finance content creation anddrive investment and innovation in radio.

10. As a result of the Decision, none of these benefits will be realized by Canadian consumers.Consumers will be deprived of competition in Quebec, where Quebecor will continue todominate, and as one commentator put it, where Quebecor will enjoy grandfathered rightsto Quebec's media domination.6 The irony of the Decision is that consumers lost but

competitors won.

11. A clear policy direction is required in order to create certainty regarding the CommissionsDoV policy. This policy plays a crucial role in the Canadian economy: it establishes theanalytical framework against which media transactions are planned and evaluated, andBCEs acquisition of Astral complies fully with it. However, instead of applying viewershipas the primary criterion as required under the DoV Policy, the Commission went wellbeyond its own DoV Policy and examined new metrics, such as percentage of televisionrevenue and the number and genre of channels that would be owned by Bell. Thesemetrics were applied without prior notice to Bell and Astral and they were clearlydeterminative in the Commissions decision to deny the Transaction.

12. When the Commission did look to viewership, it is manifestly clear from the Decision thatthe Commission erred in its application of the DoV Policy in four important respects:

(a) First, the Commission refused to include the viewership to non-Canadianprogramming services when calculating total viewership shares. This meant thatviewership to popular channels like CNN, A&E, Spike and TLC were not consideredin its assessment of Bell-Astrals combined viewership share, despite the fact thatthe DoV Policy speaks explicitly to an applicants share of all viewing and thatthese channels are authorized or licensed by the CRTC for distribution in Canada.This is clearly illogical. To take an extreme example, if viewing to U.S. services inCanada were 90% and there was only one Canadian broadcaster with a 10%viewing share, it would make absolutely no sense to attribute 100% of the total

television audience share to the Canadian service. Non-Canadian programmingservices clearly compete directly against licensed Canadian programming servicesevery day for Canadian viewership CNN versus CTV News, AMC versus TheMovie Network to give just two of hundreds of examples. Indeed, non-Canadianservices have a 13.2% viewing share in Canada. They also compete against

6 Sophie Cousineau , Pladeau locks in dominance of frozen Quebec The Globe and Mail(October 20,2012).


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Canadian services at every single level of the market for content, for advertisingdollars, for staff and for affiliation fees from Canadian cable, satellite and IPTVcompanies who pay over $340 million a year to U.S. cable services in order to carrythem in Canada.

(b) Second, it included 100% of the viewership generated by Astral joint-venturechannels in which Bell was acquiring a non-controlling interest, even though theCRTC itself excludes this viewership in its own annual Monitoring Report. Theabsurdity of the Commissions methodology is demonstrated by its result. Byincluding 100% of the viewership of a channel to each joint venture partner, thedenominator in calculating percentage viewership exceeds 100%. It is equallyabsurd to allocate 100% of the viewership to a joint venture partner that only owns50% of the channel. That is why the Commission has historically excluded jointventure interests when calculating total viewership for the purposes of the DoVPolicy and in its own Monitoring Report.

(c) Third, the Commission denied the acquisition of Astrals French-language television

services, despite the CRTCs own finding of fact that a combined Bell-Astral wouldhave a 24.9% share of television viewing, well below the 35% threshold theCRTCs DoV Policy establishes for expeditious approvals.

(d) And fourth, the Commission erroneously omitted viewership to channels like TVOand TFO in its calculations, although these licensed Canadian educationalchannels compete with all other services for viewers. The absurdity, to give butone other example, is that the Commission does not consider Steve Paikins The

Agenda to be competitive with other news programming on mainstream television,even though it is available in every home in Ontario.

13. The end result is absurd and leads only to unpredictability and uncertainty with respect to

the applicability of the DoV Policy to future ownership transactions.

14. Equally troubling is the fact that the Commission appeared to declare itself ill-equipped toapply its own newly crafted VI Framework to address presumed behavioural concernsarising from large scale mergers. The VI Framework was just adopted in 2011, after alengthy multi-stakeholder public proceeding, and implemented in 2012, with the specificobjective of facilitating vertical mergers like the current Transaction. The Commissionssolution to its apparent inability to apply its own rules is to promote a vision of thebroadcasting industry dating back to a bygone era, ridiculously going so far as to cite aCommission working paper dating back to the 1970s and a decision dating back to the1980s in rejecting the Transaction.

15. There is now marketplace uncertainty as to the relevance and applicability of the VIFramework to the evaluation of merger transactions that require the CRTCs approval.This will inevitably result in a chilling effect on investment, innovation and strategicacquisitions in the broadcasting sector. In a decision issued just two months ago, theCRTC expressed its view that the code of conduct for commercial arrangements andinteractions established by the Commission in the VI Framework (the VI Code of


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Conduct)7 in conjunction with the Commissions dispute resolution and other processes,provide a mechanism to address allegations of potential abuse of market power in thecontext of a commercial negotiation.8 Yet in the Decision, the Commission takes theextraordinary position that the VI framework would be insufficient to effectively addressdisputes and facilitate program availability and distribution.9 The industry now has no ideaif the framework will be deemed sufficient to deal with anti-competitive concerns or whetherit will be declared inapplicable to future mergers; and if it does not apply, industryparticipants have no understanding as to what, if anything, the Commission will accept inlieu of the VI Framework.

16. In terms of the radio aspects of the Transaction, although BCE proposed significant andmeaningful measures that the Commission acknowledged would bring the Transaction intocompliance with the Radio Ownership Policy, the Commission created a new requirementthat divestitures must be limited to the undertakings proposed to be acquired, rather thanthe purchasers existing undertakings. This position is completely inconsistent with theCommissions prior decisions in which it has required potential purchasers to divest theirown existing undertakings in order to acquire more successful undertakings.

17. In an attempt to support its position, the Commission turned its back on currentCommission policy and instead inexplicably based the Decision on Commission decisionsfrom the last century: (i) a 34 year working paper10 dating back to 1978 that is no longer incirculation; and (ii) a 26 year old decision11 to deny an ownership transaction, in support ofits denial of the Transaction.12

18. Todays environment bears little resemblance to 1978, when:

viewers had access to a handful of channels via rabbit ears; cable penetrationwas much lower than it is today; there were no specialty TV services in Canada,and satellite TV had not yet been launched;

7 As set out in Broadcasting Regulatory Policy CRTC 2011-601-1, Regulatory framework relating tovertical integration Correction, 14 October 2011.

8 Broadcasting Decision CRTC 2012-443, Leafs TV, Gol TV, NBA TV Canada, Mainstream Sports andLive Music Channel Change in effective control, 16 August 2012, at para. 68.

9 Decision, at para. 65.

10 CRTC 1978 Working Paper: Proposed CRTC Procedures and Practices Relating to a BroadcastingMatter.

11 Decision CRTC 86-367,Applications for Authority to Transfer Effective Control of Tl-Mtropole Inc. toPower Corporation of Canada, 18 April 1986.

12 The 1986 decision is completely distinguishable to the case at hand. It related to a few over-the-airtelevision stations in Quebec at a time when there was effectively no French-language specialtychannels. The purchase price was approximately $100 million and the potential purchaser effectivelyoffered no benefits at a time when the Commission did not have a firm benefits policy.


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nobody had Internet access, a cell phone or VCR, less than 10% of homes had amicrowave; Apple and Microsoft were start-ups;

gasoline was 63 cents/gallon, average household income was $17,000, theaverage cost of a new house was $55,000; and

Saturday Night Fever was king of the box office, Happy Days was a TV ratingsleader and Gloria Gaynor was topping the music charts with I Will Survive.

19. Todays broadcasting system is a far cry from 1978. Viewers have a plethora ofprogramming options on an ever increasing number of platforms. Unregulated behemothslike Netflix, Apple, Google and Amazon are looking to dominate the communicationslandscape in a borderless digital world. More than 10% of Canadians now subscribe toNetflix, which accounts for more than 11 million hours of TV viewing per week. Canadiancompanies need to make investments in Canadian content and technology in order toinnovate, launch multi-platform offerings for consumers and go head-to-head with thesewell-financed global competitors. And we need a regulator that is aware of the modern

communications environment and able to apply policies that reflect current marketplacerealities.

20. The CRTCs reliance on antiquated precedents exemplifies a Commission woefully out ofdate with modern broadcasting. It is disconcerting, inappropriate and not in the publicinterest for the Commission to be going back to the last century to find a regulatoryrationale to deny an ownership transaction that complies fully with the Commissions ownmodernized regulatory framework.

21. A policy direction is further required in order to dispel the perception of bias and bad faithcreated by ex parte discussions between the Commission Chair and senior executives ofcompanies opposed to the Bell Astral merger. Records filed under the federal Lobbyists

Registration Actshow that in the days and weeks leading up to the public hearing of theApplication, the Chair of the Commission met once with senior executives of Vidotron (5days before the Bell-Astral hearing), once with members of the Canadian Cable Systems

Alliance (while the record of the Bell-Astral proceeding was still open), twice with seniorexecutives of Rogers Communications, and once with senior executives of Cogeco, whileat the same time refusing to meet with BCE. This creates a perception of bias and a lackof transparency that can only be remedied by a clear policy directive that applies on agoing forward basis. It is in the public interest for such a policy direction to be issued assoon as possible, particularly if the confidence of the public markets in the Canadianbroadcasting system is to be restored.

22. The Commissions decision to deny the Transaction was premised upon at least 18 entirely

new criteria and metrics (as set out below) that are not included in any existing CRTCpolicy, have never been used before and were not communicated to Bell or Astral beforeor at the public hearing of the Transaction so that the parties could adjust their proposal inlight of these new elements. Most troubling of all in terms of future certainty and credibility,the CRTC did not set any standards for its new criteria so it will be impossible to determinewhether future transactions would be approved or not.

23. From the point of view of proper regulatory administration, it is completely inappropriate fora regulatory body like the Commission to establish new criteria and metrics without giving


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its regulated stakeholders including consumers the ability to comment on theeffectiveness and relevance of such criteria and metrics.

24. The Supreme Court of Canada has noted that although a public authoritys power may beframed as a broad policy discretion to be exercised in the public interest, that discretion,

however broadly framed, is not unfettered. At the very least the public authority mustexercise the power for the purposes for which it was granted and must observe proceduralfairness in dealing with applicants.13 These principles were not followed in this case.Instead, the Commission introduced irregularity, unpredictability and uncertainty byerroneously applying its own DoV policy and by stating in its Decision that the new testapplicants for approval of ownership transfers must meet is whether the transactionbenefits the Canadian broadcasting system.14 This new standard of approval wasintroduced for the first time in the Commissions decision to deny the Transaction. Neitherthe applicant nor any interested party had notice that this was the new standard that had tobe met, nor was there any discussion at the public hearing that would have illuminated thenature, scope and ultimately the meaning of this subjective new decision metric.

25. The end result of the Commissions Decision is absurd:

(a) The Decision is impossible to reconcile with the Commissions current policies andrecent precedents. The Commission has subjected BCE and Astral to regulatorytreatment that is different from a long line of previous applicants in similarcircumstances.

(b) The approvability of future ownership transfers is now fraught with uncertainty andunpredictability. Existing policies can no longer be relied upon for guidance as towhether a particular transaction will be accepted by the Commission.

(c) A system that has contributed over $722 million in public benefits funding as a

result of ownership transactions over the past 5 years15

has been thrown intocomplete disarray. No longer is there any certainty that ownership transactions willresult in the infusion of benefits contributions into the creation and presentation ofCanadian programming.

(d) Ownership transactions that are approved by shareholders and supported byindependent producers, advertisers, media companies, community and arts groupsno longer have any certainty as to the framework that will be applied to determinewhether they will be approved. Broad industry support and compliance withestablished policy clearly no longer matter to the Commission what appears tomatter now is the subjective viewpoint of decision-makers, without any grounding inobjective measures.

13Mount Sinai Hospital Center v. Quebec (Minister of Health and Social Services) , [2001] 2 S.C.R. 281,

2001 SCC 41, citing S. A. de Smith, H. Woolf and J. Jowell, Judicial Review of Administrative Action (5thed. 1995), at p. 417.

14Decision, at para. 17.

15 CRTC 2012 Communications Monitoring Report, at page 94.


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(e) The Commissions Decision has been tainted by aggressive and obstructivebehind-the-scenes lobbying including private meetings with the Commission byBells cable rivals, focused on protecting their profit margins, already the highest inNorth America. These same corporations dedicated their vast TV, print and othermedia holdings to an aggressive and blatantly misleading campaign aimed atsubverting due process and quashing enhanced competition. This lobbying andcarefully orchestrated and well-funded propaganda effort by Bells cablecompetitors have made a mockery of the entire process.

26. This absurdity is further demonstrated in the comments made by capital market analysts inreaction to the Decision:

Greg MacDonald, Macquarie Securities:

Greg MacDonald, an analyst with Macquarie Securities, said theCRTCs decision sends the market a confusing message aboutfuture policy. In particular, it remains unclear whether the

regulators main concern is that BCE has become too big or thatvertical integration has gone too far, he said.16

Drew McReynolds, RBC Capital Markets:

The outright denial of the transaction without the opportunity forBCE to meet additional conditions and/or tangible benefitcommitments was a major surprise to us. In contrast to whatappears to have been the case, we expected the CRTC in itsdecision to put greater emphasis on its existing Diversity of Voicespolicy and greater reliance on its existing vertical integrationframework. With respect to the Diversity of Voices policy, we

expected the CRTC to arrive at an English language viewingshare of between 35% and 45% and thus expected the CRTC toimpose additional conditions, such as asset divestitures and/oradditional safeguards, to which we were of the view there wassubstantial flexibility from BCE to comply. Furthermore, weexpected the CRTC to increase the tangible benefits package,which in our view, would not have been a material burden forBCE.

...

Adam Shine, National Bank Financial:

The CRTC did what we and many others didnt think it would do it rejected Bells application to acquire Astral. It did so by statingthat the transaction was not in the public interest and that Bell hadneither achieved the burden of proof for why the deal should beapproved nor proposed possible remedies to alleviate concerns

16As reported in CRTC pulls the plug on Bells national strategy The Globe and Mail(October 18, 2012),

http://www.theglobeandmail.com/globe-investor/crtc-pulls-the-plug-on-bces-national-strategy/article4622361/.


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expressed by other parties. Interestingly, in the Commissionsanalysis and decisions, the word consumer isnt mentionedonce.

...

The CRTCs decision has been made, but we wonder if any realeffort was put into finding a workable solution that would haveentailed conditions and divestitures to actually cope with theconcerns expressed by intervenors leading up to and during mid-September hearings. The Commission noted that safeguards toproperly supervise this level of market power would be extensiveand unduly burdensome. Were confident that Bell would havebeen receptive to hearing what these should be, rather thanhaving to propose its own list of remedies which has nothistorically been the burden of applicants in prior applications.

...

Greg MacDonald, Macquarie Securities:

A confusing message. Curiously, after allowing +90% of thetelevision revenues in Canada to be acquired by carriers, theCRTC now stops vertical integration. We had expected a forcedsale of English content to address valid concentration concernsand wrongly assumed the regulator would be in favour of BCEowning Astrals French content to bolster competition againstQuebecors dominant 30.5% share. Does the CRTC like verticalintegration or not? Our only conclusion is that Quebecor is the bigwinner and Bell the loser from this decision.

27. In short, the Decision signals a move by the Commission towards more subjectiveregulation, not less, and favouring outdated regulation over flexibility in the face oftechnological change.

28. The Canadian media and communications sector is a multi-billion dollar industry. Thesecompanies and the financial institutions, investors and ordinary Canadians that hold sharesin them are entitled to a measure of regulatory certainty, guidance and predictability fromthe regulator. It is evident from the decision that this guidance will now have to come fromthe Government as opposed to the CRTC. Accordingly, a clear policy direction is required.

29. The denial of Bells application to acquire Astral, despite the fact that the application was infull compliance with all of the Commissions established DoV Policy, VI Framework, RadioOwnership Policy and Benefits Policy, speaks to the need for immediate policy interventionby Cabinet. Without such intervention, media transactions will come to an immediatestandstill, investment will suffer and any semblance of market certainty will be lost.


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II. A policy direction is required in order to restore regulatory integrity andcertainty

(a) The Diversity of Voices Policy

30. In its Notice of Consultation17 calling for comments on the Application, the Commissionclearly indicated that the Application would be subject to its DoV Policy.

31. The CRTCs 2008 DoV Policy is the only policy which sets out a framework and the criteriaby which ownership issues in broadcasting acquisitions are evaluated by the Commission.

As noted in introductory comments in the DoV Policy, no previous policy existed:

At present, the Commission has no policies or regulations thatlimit the number of different types of media that can be owned orcontrolled by a single person.18

...

At present, the Commission has no policies with respect to thecommon ownership of discretionary television services.19

32. As evident from the following statements of the CRTC, the DoV Policy was established toprovide the industry with a clearly articulated policy and analytical framework to assessownership issues in broadcasting acquisition applications:

In the Commission's view, it is appropriate for the regulator todevelop clearly articulated policies with respect to diversity ofvoices so that all Canadians, in addition to the regulatedindustries, understand the limits to media concentration.20

...

In the Commission's view, it is important that all parties have aclear understanding of the Commission's position and that itspolicies include an indication of the analytical framework that it willuse to assess applications that raise issues related to diversity ofvoices.21

33. These rules were also meant to provide the greatest possible clarity for future ownershiptransactions dealing with television and radio undertakings:

17

Broadcasting Notice of Consultation CRTC 2012-370, 10 July 2012.

18 DoV Policy, at para. 51.

19Ibid., at para. 69.




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In the Commission's view, the question of the need for specificownership limits to ensure diversity in the private element,whether expressed as policy, regulation or guidelines, is thecentral issue of this proceeding. In resolving this question theCommission must balance the flexibility requested by mostbroadcasters against the benefits of rules or guidelines thatprovide the greatest possible clarity for future transactions andthat will provide reasonable assurance that Canadians will beserved by a diversity of private voices on a going forward basis.22

34. One of the Commissions stated objectives of the DoV Policy is [t]o restrict ownership onlywhen it is necessary to achieve the above objectives and to do so in a manner that issimple, clear and effective.23

35. In keeping with this objective, the Commission determined in the DoV Policy that ratherthan examining the ownership of individual broadcasting undertakings, it would apply ananalysis of the share of all viewing to television as a useful and accurate measure of

ownership diversity in television.24

36. Accordingly, the Commission adopted the following analytical framework that it will use toassess applications that raise issues related to diversity of voices in televisionundertakings:

as a general rule, the Commission will not approvetransactions that would result in the control by oneperson of more than 45% of the total televisionaudience share - including audiences to bothdiscretionary and OTA services;

the Commission will carefully examine transactionsthat would result in the control by one person ofbetween 35% and 45% of the total television audienceshare - including audiences to both discretionary andOTA services; and

barring other policy concerns, the Commission willprocess expeditiously transactions that would result inthe control by one person of less than 35% of the totaltelevision audience share - including audiences toboth discretionary and OTA services.

22

Ibid., at para. 35.




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Audiences will be measured separately, on a nationalbasis, for both English- and French-language marketsusing BBM/Nielsen data.25 [emphasis added]

37. Despite these clear rules and the Commissions own Notice of Consultation which said that

the Application would be subject to its DoV Policy, the very first question the CRTC Chairasked at the public hearing of the Transaction signalled he would not follow the DoVPolicy, while at the same time, never indicating what the new test would be.26 Moreover, inthe Decision, the Commission dismissed the applicability of the DoV Policy entirely bystating that the VI framework would be insufficient to effectively address disputes andfacilitate program availability and distribution.27 This abrupt change in policy andprocedure creates enormous unpredictability and ignores the doctrines of proceduralfairness and legitimate expectation.

38. BCE/Astrals combined viewership under the above criteria would be 33.5% in English-language markets and 24.4% in French-language markets, which indicates that anexpeditious approval of the Transaction was warranted under the DoV Policy. It is worth

noting that approval of the Application would have put Bell-Astral on par with cablecompany Shaw/Corus, which has a 30.2% share of English-language TV, and well behindthe existing 30% share of French-language TV held by long-dominant media conglomerateQuebecor.

39. Despite the DoV Policy clearly stating that the Commission would take into account thetotal television audience share, the Commission has refused to include the audienceshare of U.S. programming services that comprise a significant component of viewing byCanadian consumers. As noted earlier, this is clearly illogical and ignores a largecompetitive element of the Canadian broadcasting system. Moreover, throughout theentire public hearing of the Transaction, the Commission never challenged or questionedBell on the methodology it used to calculate market share.

40. In support of its position, the Commission makes two arguments. First, it claims that itdoes not consider it relevant to include services over whose ownership it does not havedirect jurisdiction.28 Whether the CRTC has jurisdiction over the ownership of U.S.programming services is irrelevant. What is relevant is that the Commission does havedirect jurisdiction over the broadcast of U.S. services in Canada, as set out in sections 20and 48 of the Broadcasting Distribution Regulations and its regulation ofThe List of Non-Canadian Programming Services Authorized for Distribution. In fact, U.S. services cannotbe distributed in Canada by Canadian cable and satellite distributors without the expressauthorization of the CRTC. Second, the Commission states that tuning to popular U.S.programming is already included in viewing to Canadian services since U.S. programming


26 CRTC Hearing Transcript, 10 September 2012, at paras. 202-205.




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is broadcast on Canadian services.29 However, the Commission fails to acknowledge thatthe simultaneous substitution rules it is alluding to: (a) are optional for cable, satellite andIPTV distributors and hence non-existent for specialty services; (b) are irrelevant forFrench-language services; (c) do not apply to pay television or pay-per-view services; and(d) only apply to a fraction of the programming broadcast on U.S. programming services inCanada.

41. The DoV Policy makes it clear that non-Canadian viewing must be considered in viewingshare calculations:

an analysis of the share of all viewing to television - includingviewing to both OTA and discretionary services - will provide auseful and accurate measure of ownership diversity in television.30

[emphasis added]

...

Diversity of programming can mean several things, such as the

expression of Canadian voices amidst foreign ones31 [emphasisadded]

...

...barring other policy concerns, the Commission will processexpeditiously transactions that would result in the control by oneperson of less than 35% of the total television audience share -including audiences to both discretionary and OTA services.32

[emphasis added]

42. The CRTCs own data show that non-Canadian services have a significant presence in theCanadian market:

there are over 220 non-Canadian services distributed in Canada;

non-Canadian services attract over 13% of English-language viewing in Canada;and

11% (or $343 million) of total affiliation payments made by Canadian cable, satelliteand IPTV distributors to pay and specialty services go to non-Canadian services.33

43. The CRTCs rationale for ignoring non-Canadian channels (i.e., the CRTC does notregulate the ownership of non-Canadian services) suggests that by ignoring them, their




32Ibid., Appendix.

33 CRTC 2012 Communications Monitoring Report, Table 4.4.3, at page 101.


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impact disappears. In other words, the Commission changed its own viewing testarbitrarily, to then have a justification to deny the Transaction. This is clearly not anappropriate or acceptable position for the CRTC, whose mandate is to regulate andsupervise all aspects of the Canadian broadcasting system.34

44. The Commission should not be permitted to disregard its own mandate and its clearlyarticulated rules in this manner. A policy direction from the Governor in Council isnecessary and appropriate in these circumstances.

(b) The Vertical Integration Framework

45. After an extensive public process, the VI Framework was released on 21 September 2011and just recently implemented by regulation this past July. To demonstrate its good faith inadhering to the VI Code of Conduct, Bell committed to adhere to this code by condition oflicence.

46. As recently as August of this year, the CRTC expressed its view that this code, in

conjunction with the Commissions dispute resolution and other processes, provide amechanism to address allegations of potential abuse of market power in the context of acommercial negotiation, which is the focus of the concerns expressed by interveners.35

47. However, in stark contrast, in the Decision, the Commission takes the extraordinaryposition that the VI framework would be insufficient to effectively address disputes andfacilitate program availability and distribution.36

48. In so doing, rather than allowing its newly implemented policy the opportunity to beapplied, the Commission would now appear to be of the view that the policy framework ithas just put in place is no longer effective or applicable to the very type of verticalintegration mergers it was designed to facilitate, or that the Commission is ill-equipped or

unable to implement it.

49. A policy direction from the Governor in Council is necessary to provide certainty andpredictability as to the current applicability of the VI Framework, as well as the role it playsin the consideration of ownership transactions involving vertically integrated licensees.

(c) The Radio Ownership Policy

50. The Commission has noted that the Radio Ownership Policy fulfils two objectives. First, itensures a plurality of ownership within the private commercial element of radiobroadcasting, and that Canadians thus have access to a variety of editorial voices within

34Broadcasting Act, section 5(1).

35 Broadcasting Decision CRTC 2012-443, Leafs TV, Gol TV, NBA TV Canada, Mainstream Sports andLive Music Channel Change in effective control, 16 August 2012, at para. 68.

36 Decision, at para. 65.


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the radio component of the broadcasting system. Second, it maintains a balance ofcompetition between radio broadcasters in any particular market.37

51. In the Application, Bell proposed significant and meaningful measures to comply with theRadio Ownership Policy, including the divestiture of 10 radio stations.

52. In the Decision, the Commission noted that [w]hile the plan respected the letter of the[Radio Ownership Policy], the decision to include certain Bell Media radio stations in thedivestiture plan can be viewed as an attempt by BCE to trade underperforming stations forsuccessful ones, which would not provide a benefit to the Canadian broadcasting systemor create the conditions for healthy competition.38

53. Once again, this is yet a new policy that is being applied by the Commission that iscompletely inconsistent with its existing Radio Ownership Policy. It has never beenCommission policy that a purchaser is not permitted to divest its existing undertakings inorder to comply with ownership restrictions. Indeed, the Commission itself has previouslyrequired potential purchasers to divest their own programming undertakings as a condition

of approval of the acquisition of another broadcaster. For example, as a condition ofapproval of CTV Inc.s acquisition of NetStar Communications Inc. in 2000, theCommission required CTV to divest its existing Sportsnet specialty service so that it couldacquire the more successful TSN sports specialty service.39

54. A policy direction is required to ensure that the Commission properly applies its RadioOwnership Policy to ownership transfers in the future. This is essential, as clearlycompliance with the stated policy is no longer sufficient to ensure approval of a multi-station ownership transfer.

(d) The Benefits Policy

55. The Commission has previously declared that:

In the Commissions view, the absence of a competitive processfor changes to the ownership or control of programmingundertakings makes the benefits test an appropriate mechanismfor ensuring that the public interest is served.40

56. The Commission has also stated that:

...the benefits policy makes it possible for the market to governchanges in effective control of broadcasting licences while

37 Broadcasting Information Bulletin CRTC 2010-341, Revised guidelines for the application of theCommon Ownership Policy for Radio, 4 June 2010, at paras. 1-2.


39 Decision CRTC 2000-86, CTV Inc. on behalf of The Sports Network Inc. (TSN), Le Rseau des Sports(RDS) Inc. (RDS), and 2953285 Canada Inc. operating as The Discovery Channel, 24 March 2000.

40 Public Notice CRTC 1999-97, supra note 5, at para. 25.


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simultaneously ensuring that the public interest is still servedthrough the allocation of a percentage of the value of thetransaction to incremental spending that will benefit audiences inthe market(s) served and the Canadian broadcasting system as awhole.41

57. Thus, the Benefits Policy is clear that the public interest is satisfied by providing tangiblebenefits that are consistent with CRTC guidelines.

58. In direct contradiction to these policy statements, in denying the BCE/Astral transaction,the CRTC stated that an appropriate tangible benefits package is only part of theapplicants obligation to demonstrate that the transaction is in the public interest.42

59. Rather than adhere to its long-standing Benefits Policy that has been applied to everyownership transaction in the last 23 years, the Decision contains a new test applicants forapproval of ownership transfers must meet, namely whether the transaction benefits theCanadian broadcasting system.43 This is an amorphous and frankly undefinable test.

60. By ignoring its own policy and precedents, the Commission has denied Canadianconsumers a $241.3 million tangible benefit package that would have delivered greaterprogramming diversity, choice and innovation. This is especially true of consumers inQuebec, where Quebecor is the largest cable provider, controls nearly 30% of televisionviewing, and is the largest vertically integrated media enterprise, with significant interestsin Internet access, home telephone and mobile services.

61. A policy direction is required to clarify for the industry whether the Commissions BenefitsPolicy will continue to be the mechanism used to ensure whether the public interest isserved by a particular ownership transfer.

III. The CRTC relied on never-before used criteria to deny the BCE/Astraltransaction

62. Rather than apply its clearly articulated policies as set out above, the CRTCinappropriately created at least 18 new criteria to be used when considering proposedacquisitions.

1) Size of the transaction (Decision, paragraphs 50 and 54).

2) Nature of the transaction (Decision, paragraph 54).

3) Percentage of revenues from discretionary services (Decision, paragraph 51).



43Ibid.


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4) Percentage (by revenues) of top ten English- and French-language discretionaryservices (Decision, paragraph 51).

5) Attainment of a significant position in sports, film and other premiumprogramming in both languages (Decision, paragraph 51).

6) Share of Canadian commercial radio revenues (Decision, paragraph 51).

7) Viewership of joint ventures not controlled by either party to the transaction, i.e.,channels where the parties hold a 50% ownership level (Decision, paragraph 53).

8) Multiple indicators of market power, competition and ownership concentration(Decision, paragraph 54).

9) Share of the number of Category A discretionary services (Decision, paragraph55).

10) Presence of the acquirer in the most attractive genres movies, sports andpremium content (Decision, paragraph 55).

11) Combined entitys ability to negotiate for every program rights window withprogramming suppliers and advertisers (Decision, paragraph 55).

12) Acquirers ability to bulk buy (Decision, paragraph 55).

13) Demonstration of how the proposed transaction would invigorate competition(Decision, paragraph 56).

14) Explanation of how the proposed transaction would address the potential negative

impact on independent entities (Decision, paragraph 56).

15) Bias against the combined entity selling less profitable radio stations in order tomeet the CRTCs Radio Ownership Policy (Decision, paragraph 57).

16) Impact of the sale of radio stations required to meet the CRTCs Radio OwnershipPolicy on the potential for new competitors to enter the market (Decision,paragraph 57).

17) Firm commitments regarding additional local and spoken word radio programmingor promotion and airplay of emerging Canadian artists (Decision, paragraph 60).

18) Plans to invest in the radio operations and news of the acquired stations (Decision,paragraph 60).

63. None of the new criteria had previously been used by the Commission in ownershiptransactions or was communicated to the parties in the present Transaction. Industrystakeholders were not given advance notice that these criteria would be used - a seriousbreach of due process. And none of these criteria are articulated in the DoV Policy.Moreover, none of these criteria have standards, benchmarks, guidelines or objectivemeasures to guide the industry or the Commission in future transactions.


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IV. The CRTC does not have unfettered discretion

64. The CRTC does not have unfettered discretion to turn its back on existing policies. Rather,it is bound by the doctrines of procedural fairness and legitimate expectation:

The discretion of a statutory body is never unfettered. It is adiscretion which is to be exercised according to law. That meansat least this: the statutory body must be guided by relevantconsiderations and not by irrelevant. If its decision is influencedby extraneous considerations which ought to not to have beentake into account, then the decision cannot stand. No matter thestatutory body may have acted in good faith; nevertheless thedecision will be set aside. That is established by Padfield v.Minister of Agriculture, Fisheries and Foodwhich is a landmark inmodern administrative law.44 [emphasis added]

65. The Supreme Court of Canada has noted that although a public authoritys power may be

framed as a broad policy discretion to be exercised in the public interest, that discretion,however broadly framed, is not unfettered. At the very least the public authority mustexercise the power for the purposes for which it was granted and must observe proceduralfairness in dealing with applicants. In addition, where the public authority makesrepresentations by word or conduct that someone will receive or retain a benefit, or thatsome procedural right will be afforded before a decision is taken, the availability and/orcontent of procedural fairness may be enlarged under the doctrine of legitimateexpectation. The focus of the doctrine of legitimate expectation is on promoting regularity,predictability, and certainty in governments dealing with the public.45

66. These principles were not followed in this case. Instead, Commission introducedirregularity, unpredictability and uncertainty by not adhering to its current policies and

recent precedents and instead, creating new criteria and metrics and relying on antiquatedprecedents.

V. A policy direction to the CRTC is required

67. The CRTC has published policies and guidelines that govern its evaluation of applicationsfor approval of changes of ownership and effective control of broadcasting undertakings.These policies play a significant role in the implementation of the broadcasting policy forCanada set out in subsection 3(1) of the Broadcasting Act, pursuant to the Commissionsmandate in subsection 5(1) of the Act to regulate and supervise all aspects of theCanadian broadcasting system.

68. These policies are intended to provide regulated broadcasting undertakings, consumers,creators, citizens and the capital markets with the greatest possible clarity, certainty and

44 Lord Denning in Breen v. Amalgamated Engineering Union [1971] 2 Q.B. 175 at 190.

45Mount Sinai Hospital Center v. Quebec (Minister of Health and Social Services) , [2001] 2 S.C.R. 281,

2001 SCC 41, citing S. A. de Smith, H. Woolf and J. Jowell, Judicial Review of Administrative Action (5thed. 1995), at p. 417.


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guidance regarding the applicable tests that must be met by all applicants seeking CRTCapproval of changes in ownership of licensed broadcasting undertakings. It is therefore inthe public interest to ensure immediate and ongoing regulatory certainty and predictabilitywith respect to the application of the CRTCs policies to applications for approval ofchanges of ownership of licensed broadcasting undertakings. Without such certainty andcredibility, stakeholders, investors and, most certainly, consumers will lose faith in theability of the Commission and other public institutions to act in the public interest. This willvery quickly result in an exodus of capital and will stifle Canadas ambitions as a leader inthe new digital economy.

69. A policy direction to the CRTC is needed to avoid the following negative consequences:

the DoV Policy will be undermined and superseded without industry consultation;

industry participants and investors will be unclear about the criteria the CRTC willuse to consider future acquisition applications;

broadcasters will be constrained from adapting to the changing environment throughcorporate reorganizations, investments and divestitures;

the decision to deny BCE acquisition of Astral will set an error-ridden regulatoryprecedent; and

the benefits to Canadians and the Canadian broadcasting system from futuretransactions involving a range of as yet unknown parties will be forgone.

70. For all of the above reasons, we respectfully request that the Governor in Council exerciseits power under section 7 of the Broadcasting Actto issue a policy direction to the CRTCrequiring it:

(a) to adhere to its existing policies with respect to diversity of voices, verticalintegration, the common ownership of radio stations and the benefits policy when itconsiders applications for approval of changes in effective control; and

(b) not to deny any application for approval of a change in ownership of a licensedbroadcasting undertaking where the application complies with the DOV Policy, theVI Framework, the Radio Ownership Policy and the Benefits Policy.

All of which is respectfully submitted.


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Direction to the CRTC (Respecting the Application of Established CRTC Policies toApplications for Approvals of Changes in Ownership of Licensed Broadcasting

Programming Undertakings)

SOR/-

BROADCASTING ACT

Registration 2012--

Order Issuing Directions to the Canadian Radio-television and TelecommunicationsCommission Respecting the Application of Established CRTC Policies to Applications for

Approvals of Changes in Ownership of Licensed Programming Undertakings

P.C. 2102-

Whereas the CRTC has published policies and guidelines (CRTC Policies) that govern theCRTCs evaluation of applications for CRTC approval changes of ownership and effective

control of broadcasting undertakings, including licensed programming undertakings;

Whereas the CRTC Policies play a significant role in the implementation of the broadcastingpolicy for Canada set out in subsection 3(1) of the Broadcasting Act46;

Whereas the CRTC Policies are the means by which the CRTC has regard to the regulatorypolicy set out in subsection 5(2) of the Broadcasting Act;

Whereas the CRTCs Policies are intended to provide regulated broadcasting undertakings,consumers, creators, citizens and capital markets investors with the greatest possible clarity,certainty and guidance regarding the applicable tests that must be met by all applicants seekingCRTC approval of changes in ownership of licensed broadcasting undertakings;

Whereas it is in the public interest to ensure immediate and ongoing regulatory certainty andpredictability with respect to the application of the CRTCs Policies to applications for approvalof changes of ownership of licensed broadcasting undertakings;

Whereas it is necessary and in the public interest for the CRTC to ensure the continuingintegrity of the Canadian broadcasting system through the consistent application of the CRTCPolicies to all applications for approval of changes in ownership of broadcasting undertakings asit is through these policies that the implementation of the broadcasting policy set out insubsection 3(1) of the Broadcasting Actand the regulatory policy set out in subsection 5(2) ofthe Broadcasting Actis achieved;

Whereas, the Minister of Canadian Heritage has, in accordance with subsection 7(6) of theBroadcasting Act, consulted with the CRTC ;

Whereas, in accordance with paragraph 8(1)(a) of the Broadcasting Act, notice of the proposedOrder issuing directions to the CRTC respecting the application of established CRTC policies toapplications for approval of changes in the ownership of licensed broadcasting programming

46 S.C. 1991, c. 11


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undertakings, substantially in the form annexed hereto, was published in the Canada GazettePart I on and interested persons were invited to make representations to the Minister ofCanadian Heritage with respect to the proposed Order;

And whereas, in accordance with paragraph 8(1)(b) of the Broadcasting Act, a copy of the

proposed Order was laid before each House of Parliament and forty sitting days of Parliamenthave since expired;

Therefore, His Excellency the Governor General in Council, on the recommendation of theMinister of Canadian Heritage, pursuant to section 7 and subsection 8(3) of the Broadcasting

Act, is pleased hereby to make the annexed Order issuing directions to the Canadian Radio-television and Telecommunications Commission respecting the application of established CRTCPolicies to applications for approval of changes of ownership of licensed broadcastingprogramming undertakings.


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SHORT TITLE

1. This Order may be cited as the Direction to the CRTC (Application of CRTC Policies toApplications for Approval of Certain Ownership Transfers) Order.

INTERPRETATION

2. In this Order,

Benefits Policy means the policy respecting the payment of benefits by licensed broadcastingprogramming undertakings at the time of transfers of effective control of licensed broadcastingundertakings as set out Public Notice CRTC 1989-109, Public Notice CRTC 1992-42, PublicNotice CRTC 1993-68, Public Notice CRTC 1998-41, Public Notice CRTC 1999-97, andBroadcasting Regulatory Policy CRTC 2010-499, as amended from time to time;

CRTC means the Canadian Radio-television and Telecommunications Commission;

DOV Policy means the policy respecting the diversity of voices set out in Broadcasting PublicNotice CRTC 2008-4;

Radio Common Ownership Policy means the ownership limits set out in Public Notice CRTC1998-41 and confirmed in the DOV Policy;

Total Television Viewing means viewership to all television services licensed by the CRTC orauthorized by the CRTC for distribution in Canada;

Vertical Integration Code of Conduct means the code of conduct that is included in the VerticalIntegration Policy; and

Vertical Integration Policy means Broadcasting Regulatory Policy 2011-601 as amended by

Broadcasting Regulatory Policy CRTC 2011-601-1.

DIRECTIONS

3. The CRTC is directed, when considering an application for approval of a change in theownership of a licensed broadcasting programming undertaking, to evaluate suchapplication only in accordance with the DOV Policy, the Benefits Policy, the Radio CommonOwnership Policy and the Vertical Integration Policy.

4. The CRTC is directed, when considering any application for approval of a change in theownership of a licensed broadcasting programming undertaking to which the DOV Policyapplies:

(a) To expeditiously approve ownership transfer applications involving televisionprogramming undertakings which result in the applicant having a viewership share ofless than 35% of Total Television Viewing;

(b) For the purposes of section (a), to measure an applicants compliance with the DOVPolicy only having regard to total television viewership; and

(c) To expeditiously approve ownership transfer applications involving radio programmingundertakings which comply with the Radio Common Ownership Policy.


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4. The CRTC is directed, when considering applications for approval of a change in theownership of a licensed broadcasting programming undertaking that is subject to theBenefits Policy:

(a) To, in the absence of a competitive process for changes to the ownership or control of

programming undertakings, only apply the Benefits Policy for the purpose of determiningwhether the application for approval of an application for a change in the effective controlof a programming undertaking is in the public interest.

5. The CRTC is directed, when considering applications for approval of a change in theownership of a licensed broadcasting programming undertaking that is subject to theVertical Integration Policy:

(a) To expeditiously approve applications for approval of changes in ownership of licensedbroadcasting undertakings involving vertically integrated undertakings where theapplicant unconditionally agrees to be bound by the Vertical Integration Framework andthe Vertical Integration Code of Conduct.

6. The CRTC is directed not to deny any application for approval of a change in ownership of alicensed broadcasting undertaking where the application complies with the DOV Policy, theBenefits Policy and the Vertical Integration Policy.

request for a policy direction pursuant to section 7 of the broadcasting act (final)

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