Bell and Telus take issue with ‘misleading’ CRTC figures issued days before value for signal decision

Telus Corp. and Bell Canada say the CRTC released misleading financial information that favoured the broadcasting industry just days before the commission’s seminal March 22 decision on value for signal. In a March 29 letter to CRTC chairman Konrad von Finckenstein, Kevin Crull, Bell Canada’s president of residential services, wrote that Bell has “significant concerns” about two CRTC releases on March 18 detailing financial data for conventional broadcasters and broadcasting distributors. The letter suggested the commission’s releases favoured the broadcasters by including “profitable Internet access and telephony services” data in the distributors’ numbers, but “omitted the financial results for pay television, pay-per-view, video-on-demand and specialty services” from the conventional broadcasters’ figures. The March 18 financial data was reported in the mainstream media and released just days before the commission’s March 22 decision, which proposed that broadcasters receive the right to open negotiations with distributors under the threat of pulling their programming. Bell said the CRTC’s financial data is used by the government and the commission to set policies and regulations, and that it is “referenced by the media and Canadians to inform their views about the industry and its participants, and forms a significant component of the public discourse in matters related to broadcasting regulation.” Bell’s letter—which the company carbon-copied to Heritage Minister James Moore—said “it is essential that the Commission report on the industry’s financial data in a factual and complete manner. In Bell Canada’s view, this has not been the case.” Michael Hennessy, senior vice-president of regulatory affairs at Telus Corp., said he agrees with the letter. “To say, on the distributors’ side, that you actually have more money than comes from broadcasting, and ignore, on the broadcasting side, money that does come from broadcasting, is totally wrong,” Hennessy said. CRTC spokesman Denis Carmel said the commission is evaluating the letter and preparing a written response. Moore’s press secretary, Matthew Deacon, wrote by email that the minister’s office is not commenting because “the CRTC is an arms-length organization.” Deacon added: “We're sure the CRTC will respond in due course.” Bell’s letter lays out three concerns with the financial figures in the CRTC press releases. It says the commission “continues to focus on the revenues and profits that cable companies realize from all of the their lines of business, including from their fast-growing and highly profitable Internet access and telephony services.” The cable companies, Bell said, generate profits, but in 2009 broadcasting distribution represented only 56 per cent of their total revenues and 32 per cent of total operating income. The letter said the type of aggregated data reported by the CRTC “would lead most observers to incorrectly conclude that the cable companies’ broadcasting distribution revenues are twice as large and their operating income is three times as large as is actually the case.” Bell also took issue with the commission omission of major broadcasters’ financial results for pay television, pay-per-view, video-on-demand and specialty services. “No reason for the delay in releasing this information has been provided by the Commission, but the effect of this omission is profound,” the letter said, because “most specialty services are owned by the same corporations that own conventional television stations.” Major broadcasters that own specialty services can offset losses in conventional broadcasting with revenues generated from specialty services, which “is impossible to discern from the Commission’s recent media releases,” the letter said. Duncan Stewart, director of research at Deloitte Canada for technology, media and telecom, told The Wire Report that Bell raises a valid point when it says the CRTC should include broadcasters’ financial figures for specialty television services. “That is probably their strongest argument,” he said. But it’s difficult to argue that the distributors’ Internet and telephony services should be omitted because all services come by “exactly the same wire.” Bell also took issue with the CRTC reporting profit before interest and taxes, and said the numbers do not take into consideration “significant capital investments that broadcasting distribution undertakings make every year,” noting that the company invested more than $400 million in 2009. Hennessy said cable and telecom distributors have consistently made the point that they run an “extremely capital-intensive business” and that it is unfair to ignore their capital costs. He played down the timing of the CRTC’s financial figures, however, saying they are released annually. But reporting profit before interest and taxes has been a longstanding issue with the distributors, Hennessy said. In an email response to questions, Bell spokeswoman Jacqueline Michelis would not say why the company copied the minister of heritage on the letter, and referred The Wire Report to Bell’s letter for the company’s views. “The letter outlines how the financial data is not factual or complete,” Michelis wrote. Stewart said the distributors may be investing hundreds of millions of dollars in networks, but pointed out that it’s not lost money—it builds infrastructure the companies own. Stewart said the letter shouldn’t surprise observers. “Wherever there are regulators, players write letters to them, trying to move the yardstick,” Stewart said. “It’s part of an ongoing conversation between the regulator and those it regulates.” Bell noted that the letter should serve as a “constructive contribution” to the commission’s key goal to “increase regulatory transparency,” recommended that the CRTC: report financial data that reflects capital investments; discontinue reporting revenues generated from “business activities unrelated to broadcasting,” including distributors’ Internet and telephony businesses; and release the financial data of specialty services at the same time as other broadcasting data and disclose the ownership of the services. CTV was not available for comment. sdoyle@thewirereport.ca

Bell and Telus take issue with ‘misleading’ CRTC figures issued days before value for signal decision

Broadcast | April 7, 2010

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