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Bell says cabinet should intervene in CRTC Astral ruling; Paradis 'respects' decision

Published: Thursday, 10/18/2012 8:33 pm EDT
Last Updated: Friday, 10/19/2012 4:46 pm EDT

BCE Inc. said it would call on the federal cabinet to "intervene" in the CRTC's decision to block the company's $3.38-billion deal to acquire Astral Media Inc. as Industry Minister Christian Paradis said he respects the regulator's ruling.

In a release, Bell said it would seek a review of the decision, issued Thursday, on the grounds that it contravened CRTC policy and was “tainted by behind-the-scenes lobbying” by competing cablecos.

“We met all the CRTC's rules,” George Cope, Bell's president and CEO, said in a statement. “The wide-ranging benefits to Canadians of the transaction are clear, but the CRTC has told consumers that they and the rules in place just don't matter.”

Bell said the CRTC decision ignored the commission's 2008 diversity of voices policy, which says the commission will approve acquisitions that do not result in any company acquiring more than 35 per cent of the French or English-language television audience share.

Bell said a combined Bell-Astral viewing share would amount to 33.5 per cent of the English-language market and 24.4 per cent of the French-language market.

“With this CRTC policy in place, and which Bell logically used as its guide in acquiring Astral, the CRTC instead quotes a working paper from 1978, a single application from 1986 and a 1989 public notice to justify its rejection of the Bell-Astral transaction in 2012,” Bell said, pointing to documents the commission referenced in its decision.

In its decision, the CRTC said Bell, after acquiring Astral, would have a combined 42.7 per cent viewing share in the Canadian television market, including television services jointly owned with other companies. In the French-language television market, the combined BCE-Astral viewing share would reach 33.2 per cent including jointly owned services.

The commission said in its decision that it was aware the combined market share would fall below the 45 per cent threshold that requires the commission to block the deal. It said it blocked the deal over concerns about competition, Bell's market power, and a proposal that did not appear to benefit the public interest.

Bell said in the release Thursday that it would "request that the federal Cabinet intervene in the CRTC’s decision" and for cabinet "to issue direction to CRTC to follow its own regulatory policy."

BCE chief executive George Cope, in an interview with BNN Friday, added that the company will ask the government for a “policy review” under Section 7 of the Broadcasting Act.

“We can't technically appeal this to cabinet but there's a part of the Broadcast Act [that] allows us to ask cabinet to send the directive back to the CRTC saying, 'follow your rules,'” he said. “We're fully comfortable, if they actually follow the policy put in place in [the] diversity rules in 2008, that we meet the threshold.”

Paradis indicated Friday that the government will not get involved. "The CRTC operates on an arm's length from the government," Paradis said at the Canadian Space Agency in Montreal, according to report by The Canadian Press.

"I understand that they held hearings and they made their decision so at that point I will no longer comment since the decision is still there," Paradis told CP. "Bell, I don't know what they will do, but the decision was clear in terms of a conclusion, and we do respect what the CRTC said on this regard."

The federal cabinet cannot overturn the decision because no broadcasting licence was issued.

“Cabinet has no legal ability to review this decision,” Paul Calandra, parliamentary secretary to the minister of Canadian Heritage, told The Wire Report Friday.

Bell instead would have to appeal to the decision to the Federal Court of Appeal or ask the federal cabinet to issue a policy direction to the CRTC related to the decision, which seemed unlikely Friday.

In a telephone interview Friday, Pierre Trudel, the director of the media research centre at the University de Montreal, said an application to the Federal Court of Appeal would have to demonstrate that the commission disregarded statutes in its decision.

“The law gives the CRTC very broad power for evaluating whether the transaction is in accordance with broadcasting policy, and usually the courts are very reluctant to second-guess the CRTC on these questions,” he said.

He said Bell’s argument that the CRTC cited older regulatory policies at the expense of the newer diversity of voices policy is probably not “enough to demonstrate that the CRTC disregarded the law and went over the law in making its decision.”

Cope told BNN that the “rules changed” with the CRTC's decision, which excluded American channels from the total viewing share when it measured the viewership levels of Bell that would result from the transaction. That, Cope said, effectively rose Bell's viewership levels.

“Yesterday, the rules changed. Conveniently, Canadian viewership of American channels was taken out of the definition of the market. There are 200 U.S. channels,” he said, adding that U.S. channels compete with Canadian channels.

Cope said that “without a doubt” the CRTC's diversity of voices policy on viewership levels was intended to include Canadian viewership of American channels. “I confirmed it with the previous chair of the CRTC, who was the author of the policy,” he said.

He said he believes cabinet will question the decision when it looks at the way the CRTC interpreted its diversity of voices policy.

“I have complete confidence that when cabinet looks at this, and someone says, 'Hang on, they got the definition by ignoring Canadian viewership [of U.S. channels] … and we took them out to get to this transaction not happening?' That's got to [be] called into question,” he said.

The CRTC decision cited the public interest, Bell's market power in Canada, and said the diversity of voices policy was not the only consideration at play.

“The Commission considers that convergence, integration and scale may lead to a point at which the size of an entity on a national level becomes so large that it hinders effective and healthy competition among Canadian broadcasters,” the decision said.

Bell said in its release that “senior CRTC officials” held private meetings with competing cablecos in the weeks leading up to a weeklong hearing on the transaction in September. It said the company was denied the opportunity for a similar meeting.

“These same corporations dedicated their vast TV, print and other media holdings to an aggressive and blatantly misleading campaign aimed at subverting due process and quashing enhanced competition,” Bell said.

Competing cablecos Quebecor Media Inc., Cogeco Cable Inc. and Bragg Communications Inc. launched an online social media and national advertising campaign in August, called “Say No to Bell,” to generate public opposition against the transaction.

The campaign used radio, print and outdoor advertising to call on the public to submit letters voicing their concerns about the acquisition to the federal heritage and industry ministers, members of Parliament, and the CRTC.

Astral said in a release in March that a break fee "of up to $150 million would be payable by Bell to Astral if the transaction does not close for regulatory reasons."

In a research note Friday, Scotia Capital analyst Jeff Fan said a Bell request for cabinet intervention would be “a long shot.” He said “BCE-Astral was Mr. Blais' first major decision. It would seem unlikely that the government would now seek to reverse his first decision.”

Fan said BCE's dividend strategy may be compromised without Astral's earnings, and speculated about future suitors for the company.

“Astral should still be in play but the rules are not unclear as to who can even acquire it,” Fan said. “Rogers  [ Communications Inc.] is likely interested in some of the assets but may not be allowed to buy all of Astral. There has also been speculation that Cogeco and Corus [Entertainment Inc.] could partner to acquire Astral. But Cogeco just made its bet in the U.S. with Atlantic Broadband. And like Rogers, with Corus being considered under the Shaw umbrella, it may not be able to pursue this, as it will likely be considered another vertical transaction by Shaw.”

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