BELL/ASTRAL: Numbers don't add up: Bell appeals to feds for immediate policy direction to CRTC

OTTAWA – Bell Canada claims the CRTC, in its decision to kill the company's $3.4 billion takeover of Astral Media, ignored its own rules, created a bunch of new ones, was based on incorrect market share calculations and because of that it has asked the federal government to directly step in.

Calling the CRTC decision “absurd,” on Monday, BCE Inc. submitted a request to the federal Cabinet that it issue a policy direction under Section 7 of the Broadcasting Act that directs the CRTC to follow its existing policies when reviewing change of control transactions in broadcasting, which would, if adopted, have the effect of causing the Commission to reverse its decision on Bell's proposed purchase.

"In rejecting the Astral transaction the CRTC rejected its own established policies, creating serious regulatory uncertainty in Canada's vital broadcasting sector," said Mirko Bibic, Bell's chief legal and regulatory officer. "We're requesting that Cabinet provide the required guidance to the CRTC to follow its own rules in place, with which the Astral-Bell transaction fully complied."

Bell maintains that Astral joining Bell would bring a "range of benefits to Canadian consumers and content creators, including more than $240 million in new funding" for English and French language programming, the protection of local TV stations in small communities, the launch of a national French-language news service based in Quebec, and an innovative new service to compete with U.S. Internet broadcasters.

In its application, Bell has asked Cabinet to direct the CRTC to adhere to policies governing the evaluation of broadcasting acquisitions, including the Diversity of Voices decision, the Vertical Integration framework, the common ownership policy for radio, and the benefits policy.

It is not, says the petition to cabinet “requesting that Cabinet overturn the decision and directly approve the transaction,” instead requesting that the governor in council tell the Commission to follow its own, recent, rules, and not precedents from the 1970s and 1980s.

“The CRTC’s reliance on antiquated precedents exemplifies a Commission woefully out of date with modern broadcasting. It is disconcerting, inappropriate and not in the public interest for the Commission to be going back to the last century to find a regulatory rationale to deny an ownership transaction that complies fully with the Commission’s own modernized regulatory framework,” reads Bell’s cabinet petition.

That said however, the reference to the 1970s in the Commission decision was a single footnote addressing long-held CRTC principles, once espoused in a 1978 working paper and repeated several times since. The 1980s reference was the denial of Power Corporation’s attempted purchase of Télé-Métropole.

Bell says the CRTC did not follow its own Diversity of Voices policy, issued in 2008, to guide the evaluation of broadcasting acquisitions. "Instead, the Commission ignored its own rules, creating new criteria and metrics not included in any of its existing policies and never used before. The Commission set no standards for these new criteria and established them without offering any stakeholder the opportunity to comment."

Bell quotes from the Diversity of Voices intended policy that "the need for specific ownership limits is the central issue of the proceeding" because there are "benefits of rules or guidelines that provide the greatest possible clarity for future transactions." But Bell contends that the Astral decision has had the opposite impact by injecting "much uncertainty into Canada's broadcasting, capital and investment sectors."

Diversity of Voices directs that the CRTC "will process expeditiously transactions that would result in the control of less than 35% of the total television audience share," argues Bell. "Properly calculated, the Astral-Bell transaction would result in a total English-language TV market share of 33.5%, on par with competitors Corus/Shaw, and just 24.4% in French-language TV - significantly lower than Quebecor, Bell's primary cable-broadcast rival in Quebec," contends Bell.

In the decision denying the deal, the CRTC calculates the combined BCE/Astral English-viewing share, including joint ventures, at 42.7%, and 33.1% for French-language viewing.

Bell also highlighted the Diversity of Voices policy directs the CRTC to include all TV services licensed or authorized for distribution in Canada in its calculations. But the CRTC "inexplicably ignored the significant viewership of popular American channels such as CNN, A&E, TLC, CNBC, Fox News, US superstations and others. The more than 200 cross-border channels available in Canada obviously compete directly for Canadian viewers, holding a share greater than 13% in the English-language TV market."

However, the CRTC has, in the past, only counted Canadian services when considering such matters and CRTC chairman Jean-Pierre Blais last week said the Commission can not count channels over which it has no ownership jurisdiction. “Whether the CRTC has jurisdiction over the ownership of U.S. programming services is irrelevant. What is relevant is that the Commission does have direct jurisdiction over the broadcast of U.S. services in Canada, as set out in sections 20 and 48 of the Broadcasting Distribution Regulations and its regulation of The List of Non-Canadian Programming Services Authorized for Distribution,” reads the Bell submission to the Governor In Council.

Bell added that a policy direction is also needed to "remove any perception of bias created by several meetings between senior CRTC officials and cable companies opposed to the Bell-Astral transaction in the days before and after public hearings into the transaction," and that "Bell was denied the opportunity for such meetings."

Bell even wrote out a possible policy direction (see below) and filed it with its petition to cabinet.

Clearly Bell is pulling out all the stops to try and save this deal. We will see soon if the feds respond, but if Finance Minister Jim Flaherty’s and Industry Minister Christian Paradis’s comments to the CBC over the weekend are any indication, the company faces a tough battle convincing the politicians this is something they need to consider.

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Direction to the CRTC (Respecting the Application of Established CRTC Policies to Applications for Approvals of Changes in Ownership of Licensed Broadcasting Programming Undertakings)

Order Issuing Directions to the Canadian Radio-television and Telecommunications Commission Respecting the Application of Established CRTC Policies to Applications for Approvals of Changes in Ownership of Licensed Programming Undertakings

Whereas the CRTC has published policies and guidelines (“CRTC Policies”) that govern the CRTC’s 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 broadcasting policy for Canada set out in subsection 3(1) of the Broadcasting Act;

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

Whereas the CRTC’s 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 seeking CRTC approval of changes in ownership of licensed broadcasting undertakings;

Whereas it is in the public interest to ensure immediate and ongoing regulatory certainty and predictability with respect to the application of the CRTC’s Policies to applications for approval of changes of ownership of licensed broadcasting undertakings;

Whereas it is necessary and in the public interest for the CRTC to ensure the continuing integrity of the Canadian broadcasting system through the consistent application of the CRTC Policies to all applications for approval of changes in ownership of broadcasting undertakings as it is through these policies that the implementation of the broadcasting policy set out in subsection 3(1) of the Broadcasting Act and the regulatory policy set out in subsection 5(2) of the Broadcasting Act is achieved;

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

Whereas, in accordance with paragraph 8(1)(a) of the Broadcasting Act, notice of the proposed Order issuing directions to the CRTC respecting the application of established CRTC policies to applications for approval of changes in the ownership of licensed broadcasting programming undertakings, substantially in the form annexed hereto, was published in the Canada Gazette Part I… and interested persons were invited to make representations to the Minister of Canadian 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 Parliament have since expired;

Therefore, His Excellency the Governor General in Council, on the recommendation of the Minister 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 CRTC Policies to applications for approval of changes of ownership of licensed broadcasting programming undertakings.

SHORT TITLE

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

INTERPRETATION

2. In this Order, “Benefits Policy” means the policy respecting the payment of benefits by licensed broadcasting programming undertakings at the time of transfers of effective control of licensed broadcasting undertakings as set out Public Notice CRTC 1989-109, Public Notice CRTC 1992-42, Public Notice CRTC 1993-68, Public Notice CRTC 1998-41, Public Notice CRTC 1999-97, and Broadcasting 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 Public Notice CRTC 2008-4;

“Radio Common Ownership Policy” means the ownership limits set out in Public Notice CRTC 1998-41 and confirmed in the DOV Policy;

“Total Television Viewing” means viewership to all television services licensed by the CRTC or authorized by the CRTC for distribution in Canada;

“Vertical Integration Code of Conduct” means the code of conduct that is included in the Vertical Integration 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 the ownership of a licensed broadcasting programming undertaking, to evaluate such application only in accordance with the DOV Policy, the Benefits Policy, the Radio Common Ownership Policy and the Vertical Integration Policy.

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

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

(b) For the purposes of section (a), to measure an applicant’s compliance with the DOV Policy only having regard to total television viewership; and

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

4(sic). The CRTC is directed, when considering applications for approval of a change in the ownership of a licensed broadcasting programming undertaking that is subject to the Benefits 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 determining whether the application for approval of an application for a change in the effective control of a programming undertaking is in the public interest.

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

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

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