CRTC inside wiring ruling likely to help Bell ExpressVu crack tough MUD market

A Rogers Cable executive contends that a recent CRTC decision on inside wiring will mean that landlords will be forced to wire their own buildings, while rival Bell ExpressVu counters that the decision will knock down barriers for new competitors offering TV services in the multiple unit dwelling (MUD) market. Mirko Bibic, chief of regulatory affairs at Bell ExpressVu’s sister company Bell Canada, called the CRTC decision an affirmation that there should be consumer choice in MUDs. "The decision will knock down barriers to entry in the TV business in multiple dwelling units," he tells Canadian Communications Reports. "Knocking down Rogers’ poison pill clause coupled with the recent announcement of the reexamination of the winback rules bodes well (see brief in this issue). The CRTC is saying that the dominant carrier can’t act that way." But Rogers’ VP of regulatory affairs Ken Engelhart says he’s "seriously disappointed" with the decision and predicts it will lead to landlords having to wire their buildings at their own cost. Rogers has long stated that it had put buy-back clauses into its agreements with landlords as a "sensible and practical" way to help recover the cost of wiring a building. The Rogers executive states that Bell ExpressVu has never wanted to wire new buildings, but instead prefers to piggyback on the capital outlay of Rogers. The decision may lead Rogers to stop wiring new buildings, which would force the landlords to undergo the expense, Engelhart points out. "I don’t see why the CRTC’s 52-cent lease rate should be applied to new buildings," he says. "Bell ExpressVu has as much a chance to install the wiring as Rogers does. But they don’t do it. They want to be the free rider." Engelhart says that Rogers is currently examining how to comply with the commission decision, which ruled that the cableco’s buy-back clause, or Clause 4, contravened CRTC policy. On November 12, the commission determined that Rogers gave itself an undue preference by putting buy-back clauses into their agreements with MUD owners. Clause 4 of the agreements with Rogers required property owners to purchase the inside wire from Rogers if an alternative TV distributor was granted access to a MUD. The landowners would then charge the new TV entrant 50% of the cost of the inside wire, while Rogers would be granted access to the wiring in perpetuity at a pre-determined price. Bell ExpressVu filed a complaint with the CRTC against the practice last summer (CCR, July 31/03). Canada’s leading satellite TV operator charged that with the Clause 4 in place, it worked out that it would be paying $3.33 per month for the use of the inside wiring in a five-year-old MUD with 300 units, if it were able to capture one-third of the suites in the building. The upfront costs, Bell ExpressVu argued, would be $200 per affected suite. In its complaint, the direct-to-home (DTH) satellite TV distributor argued that the amount was more than the monthly charge of 52 cents per subscriber per month rate set by the commission in September 2002 in violation of CRTC regulation. Rogers countered that the cost of wiring new buildings amounted to about $200 per suite, and that the rate set by the commission for third-party use of inside wiring was an inadequate return. Rogers stated that a distributor must earn a return of $40 per year from the wiring to pay its financing and depreciation costs. It noted that at the 52-cent rate, it would earn revenues of only $6.24 per year. Rogers noted that under these circumstances, no distributor would install inside wiring in either a new MUD or an existing one. Bibic tells CCR that he is unable to answer at this time whether Bell ExpressVu will step in and begin wiring new buildings. The commission, however, agreed with Bell ExpressVu and stated in its decision that Rogers has acted in violation of section 9 of the Broadcasting Distribution Regulations, and in violation of subsections 10(1) and 10(2) of the regulations if it were to invoke Clause 4. "…The commission has consistently considered access to inside wire to be a critical issue for the development of competition in broadcasting distribution. The objective of section 10 of the regulations is to eliminate a potential barrier to entry for new entrants and to ensure that subscribers are able to obtain service from the service provider of their choice," states the CRTC. "…Indeed, based on the record of this proceeding, it is clear that Rogers specifically intended to avoid having to make its inside wire available in accordance with subsections 10(1) and (2) of the regulations at a rate of 52 cents per subscriber per month, which the commission has determined to be just and reasonable." The commission also found that Clause 4 was likely to confer an undue preference on Rogers, and subject ExpressVu and other new entrants to an undue disadvantage – and thus is contrary to the objectives to the Broadcasting Act and to the public interest. The CRTC ordered Rogers to bring itself into compliance with the regulations with regard to Clause 4. Bell ExpressVu had asked the CRTC to require Rogers to notify all parties who had signed deals containing the Clause 4 that it was unenforceable, to place notices to such effect in major newspapers in its service territory, and to place on the public file all of its access agreements. The regulator doesn’t consider those specific measures necessary at this time, but notes that if Rogers doesn’t mend its ways, then it could initiate a public proceeding to examine why it shouldn’t exercise its enforcement powers. The Clause 4, according to Rogers, has been included in agreements since 2000, and is in force in 304 new buildings and 26 older buildings that had been rewired – a figure that represents less than 5% of the MUD market in Toronto. Bell ExpressVu had charged Rogers with a litany of other anti-competitive practices in filing its complaint last year. But the CRTC dismissed the portion of the satellite TV operator’s complaint against Rogers that alleged operational breaches of requirements related to the transfer of the inside wire, contraventions of winback rules, and various improper targeted marketing campaigns aimed at the MUD market in Toronto. It said that Clause 4 and other anti-competitive practices by Rogers were shutting it out of servicing MUDs in the Greater Toronto Area. ExpressVu says that it has only been able to acquire about 10,000 subscribers living in MUDs in the GTA. CRTC commissioners Barbara Cram and Stuart Langford issued written dissents in conjunction with the decision.

CRTC inside wiring ruling likely to help Bell ExpressVu crack tough MUD market

Broadcast | November 22, 2004

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