Safeguards not enough to limit Bell-Astral market power, competitors say

Additional safeguards intended to protect competitors and consumers from a larger stable of media assets under BCE Inc. are not enough for the broadcast regulator to approve its purchase of Astral Media Inc., competing broadcast distributors said. In final comments filed with the CRTC Wednesday, Rogers Communications Inc., Cogeco Cable Inc., Quebecor Media Inc., and other broadcast distributors said there are no licence conditions the CRTC can impose on a combined Bell-Astral that would curb the company’s potential ability to delay competitors' access to its premium film, sports, and HBO content. Telus Corp. and the 115 members of the Canadian Cable Systems Alliance (CCSA), in their final comments, encouraged the regulator to impose more aggressive licence conditions on BCE. “Safeguards required to protect against a more powerful Bell will not work,” Bragg Communications Inc., operating as Eastlink, said in its filing. “Neither the rules in place today, nor any other rules as proposed could limit a larger Bell’s ability to exert influence and control over its competitors in this industry.” The CRTC held five days of hearings last week into BCE's proposed $3.38 billion deal for Astral and its stable of radio stations and specialty and pay-TV channels. The hearing followed the commission’s rejection of Bell's first application last September, when it ruled that the deal was not in the public interest. During the hearing, CRTC Chair Jean-Pierre Blais raised the possibility of imposing “ex ante” licence conditions on BCE, and requiring the company to submit carriage and TV content rights negotiations to a CRTC-led final offer arbitration process if agreements are not reached with competitors six months before existing deals expire. BCE said in a filing with the regulator on Monday that such a condition would not be “necessary or appropriate,” largely because of “the absence of any evidence on the record (or otherwise) of market failure, anti-competitive behavior, or any systemic issues” on the part of Bell. BCE executives also said at the hearings they could agree to conditions of licence that referred to the CRTC’s vertical integration regulations. Those rules are intended to prevent large, vertically integrated broadcast, mobile, Internet and TV providers from anticompetitive behaviour. In a final submission filed with the commission Wednesday, Rogers said the suggested ex ante rules would not ensure competing distributors would have access to BCE-owned content for their online, mobile and on-demand video services on “commercially reasonable terms.” The proposed conditions would also fail to ensure BCE does not delay competitors’ access to its media content, Rogers said. “It will become even more difficult for Rogers and other third party distributors to develop new offerings if our key programming partner, Astral, is turned into our competitor,” Rogers said, referring to the importance of Astral's TMN and TMN Encore programming, which includes HBO. “Bell will effectively control all innovation in the industry.” Rogers said the CRTC’s final offer arbitration process for disputes—what observers call “baseball arbitration”—is an “imperfect regulatory tool” to address BCE's resulting market power. The company said the process should be used “only as a last resort when all other options have failed,” and “is not a replacement for a properly functioning marketplace.” Rogers and other distributors said they are concerned BCE will increase the cost of access to Astral-owned TMN content when their distribution agreements expire. In Rogers' case, the company said, that's in September 2015. BCE's competitors would have to renegotiate new contracts for access to content every time they want to add it to new platforms, such as gaming consoles or smart TVs, Rogers said, suggesting BCE could delay negotiations until it launches a competing service. Cogeco said in its final comments that binding BCE to aspects of the commission’s vertical integration policy through a condition of licence would be ineffective. The conditions, as proposed by BCE, omitted or replaced “several critically important requirements” of the code, including a prohibition on imposing “unreasonable rates” on competitors or requirements that broadcasters cannot demand that distributors carry their channels on basic service packages, Cogeco said. “BCE deliberately removed from the COL provisions that might restrict its flexibility to interpret the Code in its favour,” Cogeco said. “This strategy underscores why regulatory safeguards are complex and difficult to implement and enforce.” Telus Corp. agreed that Bell omitted key elements from its proposed licence conditions. It said in its submission that the regulator should reinforce the vertical integration conditions before approving the deal. “Bell’s proposed conditions are insufficient and fail to address the most significant issue, namely the commercial reasonableness of rates,” Telus said. The CCSA said in is final comments that the CRTC should require Bell to offer “standard, commercially reasonable and transparent” wholesale carriage rates to all broadcast distributors that do not penalize smaller broadcast distribution companies with higher fees. At the same time, Eastlink, Quebecor, Cogeco, MTS Inc. and the CCSA said they would prefer the CRTC reject the deal outright, as the regulator did last fall. Rogers repeated its request that the regulator require BCE to divest popular Astral movie channels, TMN and TMN Encore. Rogers indicated last week that it would look at purchasing them. Rogers also said it would be prepared to purchase BCE's English-language, sports radio station in Montreal, TSN 690, if the CRTC required Bell to divest it according to its common ownership policy, which limits the number of same-language radio stations a single company can own in one market. Jacques Parisien, executive vice-president and chief operating officer of Astral, told commissioners last week that Bell would sell the station if the commission doesn’t grant the company an exemption to the common ownership policy. Chris Gordon, president of radio and local TV at BCE division Bell Media, told commissioners that a sale of TSN 690 would not include the station’s rights to broadcast Montreal Canadiens games. TSN spokesman Greg McIsaac said in an email Thursday that Bell Media has those rights until the spring of 2018. Under an agreement with the Competition Bureau, Bell has agreed to divest 12 Astral specialty channels and 10 radio stations. In a release Thursday, Jim Pattison Broadcast Group Ltd. said it had reached an agreement to acquire three radio stations, Bell Media's CKCE-FM in Calgary and CHIQ-FM in Winnipeg, as well as Astral's CFQX-FM in Winnipeg. At the hearing last week, BCE chief executive George Cope rejected competitors’ complaints about high distribution fees, saying the company’s business model is based on licensing its content to as many distributors as possible. BCE spokeswoman Jacqueline Michelis told The Wire Report in an emailed statement last week that its competitors “would rather have regulatory intervention supersede market negotiation” and that the company has offered some competitors “extremely reasonable” rates for on-demand rights to Bell Media's 29 specialty channels. BCE will file its final comments for the CRTC consultation process on May 21. Bell and Astral's deadline to close the deal is June 1, though either company has the right to push it to July 31. —With reporting by Nicholas Kyonka at nkyonka@thewirereport.ca and Danika Grenier at dgrenier@thewirereport.ca and editing by Simon Doyle at sdoyle@thewirereport.ca

Safeguards not enough to limit Bell-Astral market power, competitors say

Broadcast | May 16, 2013

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Safeguards not enough to limit Bell-Astral market power, competitors say

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