BCE agrees to possible condition to more quickly resolve carriage disputes

BCE Inc. executives appeared before CRTC commissioners to make a final pitch for the company's proposed $3.38 billion purchase of Astral Media Inc., where they twice shot down suggested conditions from the regulator, saying BCE would not proceed with the deal if the conditions were imposed. BCE chief executive George Cope said Friday that a CRTC order that the company divest "must have" Astral channels The Movie Network and TMN Encore, as suggested by competitor Rogers Communications Inc., or any move towards wholesale fee regulation for the carriage of specialty channels, would be going too far as possible conditions on the deal. Still, in a back-and-forth discussion between BCE executives and CRTC Chair Jean-Pierre Blais, the company said it could agree to regulatory conditions that would automatically bring CRTC arbitration into content carriage disagreements, six months before the deals expire, to ensure agreements are reached. Cope and other executives appeared at the final day of a week of hearings in Montreal to consider BCE's second proposal to acquire Astral. The regulator denied BCE's first application last fall, saying it was not in the public interest. “If we were asked to divest any more of the channels or content, we would not move forward with the transaction,” BCE chief executive George Cope said in response to a question about further divestitures from Blais, adding that companies who appeared at the hearing this week, and asked the regulator to block its application or order further divestitures, are serving their own interests. “Further divestitures will eliminate any strategic rationale for what is already a scaled down transaction,” Cope said, alluding to BCE's agreement with the Competition Bureau in March to sell off 12 specialty channels, including Teletoon and Disney, with half of them going to Corus Entertainment Inc. Cope said the company read the CRTC's decision very carefully and made adjustments accordingly, going further with the divestitures than it wanted to. Blais raised possible regulatory conditions Friday as ways to address concerns from competitors that said BCE's ownership of premium sports and entertainment content, including Astral's TMN and HBO programming, would give the company an incentive to charge competing broadcast distributors excessively high rates for its content or block them from accessing it. Blais questioned the executives on the possibility of prior CRTC approval of channel and content licensing agreements, what he called “an ex ante oversight of the wholesale market.” Cope said any such condition would kill the deal. BCE could not agree to the “wholesale regulation of rates ahead of time,” Cope said. “We would not move forward with the transaction with that proposed regulation.” “Interesting, Mr. Cope, because if I understand you correctly, you're telling me, 'Well, until we meet again,'” Blais responded. “Every idea we're putting forward, you're saying you would not go ahead with the transaction.” After some back and forth to clarify the possible condition, the BCE executives said they could agree to one that says wholesale rate negotiations would automatically come into the commission's final offer arbitration process if a content sharing agreement is not reached six months before the expiration of an existing deal. Blais said the condition could work as a mechanism to “focus the mind” and ensure deals are reached before CRTC involvement in the negotiations. He cautioned people at the hearing that all of his questions were asked to put them on the record and that they did not indicate where the CRTC is headed with BCE's application. Mirko Bibic, executive vice-president and chief legal and regulatory officer at BCE, said the company would be willing to accept the condition applying to the traditional and online, on-demand rights for the content of Bell Media, the broadcasting division of BCE. Bibic said BCE will commit to negotiating linear and online, on-demand rights to channels and programs at the same time, and that the CRTC's dispute resolution mechanisms are the proper way to address carriage disagreements. “We are confident we can get deals done,” he said. BCE's strategic rationale for the deal is to compete with online, over-the-top alternatives, Cope said, and to bring more competition into the Quebec market, particularly with major provincial player Quebecor Media Inc. He said he believes Bell Media's and Astral's content will be cheaper under BCE's ownership, in part due to larger scale. The company intends to use its growing broadcasting assets to distribute them on all platforms, including mobile phones and its expanding fibre-based IPTV service, and take more bundled customers from competitors. David Purdy, senior vice-president of content at Rogers, acknowledged at the hearing this week that the company is competing with BCE for entire households, and even a six-month exclusive on premium content for BCE could mean subscriber losses in the “tens of thousands.” Company earnings statements released this week showed that Rogers is growing mobile subscribers at a much slower rate than BCE and Telus Corp., and MacDougall, MacDougall & MacTier telecom analyst Troy Crandall told The Wire Report that Rogers' slower growth can be attributed to bundled customers switching to Bell’s fibre-based TV and Internet product. The BCE executives appeared Monday to launch the hearing. Friday was their chance to respond after competitors and other interveners appeared throughout the week. Cogeco Cable Inc. and several other distributors, including Telus, Bragg Communications Inc. and the 115 members of the Canadian Cable Systems Alliance (CCSA), said BCE has been asking for excessively high fees to access its Bell Media content and 29 specialty channels. Quebecor Media Inc. said Thursday that a combined BCE and Astral would have unfair leverage to reach “pan-Canadian” advertising deals and content licensing agreements for Canada's English and French markets. “There has been no anti-competitive conduct ever, or any finding, that Bell has acted unreasonably in these issues,” said Kevin Crull, president of Bell Media, in response to BCE's competitors. He said the competition issues related to the transaction were “extensively reviewed” by the Competition Bureau in a process that lasted more than a year. Crull said wholesale content rights in the United States have risen more than Bell Media's and that the company's costs have risen faster than its revenues since 2008. BCE provided confidential data to the CRTC, related to two recent distribution agreement renewals, to demonstrate its rising costs, Crull noted. In response to a question from Blais about what would happen if the application was denied, Astral chief executive Ian Greenberg said the impact would be “severe.” A denial of the transaction would create further uncertainty for Astral's employees, Greenberg said, who have dealt with uncertainty about a possible new owner for the past 15 months. He said that uncertainty would hang for about another year as he talked with the Greenberg family, who are partners in the company ownership, about next steps. BCE and Astral's deadline to close the deal is June 1, and either company has the right to push it to July 31. The CRTC said in a notice Friday that the deadline for final written comments about the proposed transaction is May 15, and that Bell and Astral can reply to those comments by May 21. —With reporting by Simon Doyle at sdoyle@thewirereport.ca and copy editing by Nicholas Kyonka at nkyonka@thewirereport.ca

BCE agrees to possible condition to more quickly resolve carriage disputes

Broadcast | May 10, 2013

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BCE agrees to possible condition to more quickly resolve carriage disputes

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