Cogeco Presentation - Let’s Talk TV CRTC Public Hearing
COGECO CABLE INC.
Oral Presentation
Let’s Tal k TV Publi c He ar ing
11 September 2014
Good afternoon, Mr. Chair, Mr. Vice-Chair and Commissioners.
Thank you for giving us the opportunity to appear today at this
important hearing on the future of Canadian television. I am Louis
Audet, President and Chief Executive Officer of Cogeco Cable Inc.
and I will introduce the members of our team. To my immediate left
Louise St-Pierre, President and CEO, Cogeco Cable Canada GP
Inc.; to her left, Jean-Pierre Caveen, Vice President, Affiliate, Partner
and Carrier Relations at Cogeco Cable Canada GP Inc. To my
immediate right, Nathalie Dorval, Vice President, Regulatory Affairs
and Copyright at Cogeco Inc.; to her right, Yves Mayrand, Consultant;
and to Yves’ right, Suzanne Blackwell, Consultant and President of
Giganomics Consulting inc. who prepared the economic study
attached as an Appendi x to our written intervention.
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I would like to focus our remarks today on a few key elements of our
written intervention, more particularly in light of the working document
you issued on August 21. You will also find in the Appendix to our
presentation a detailed statement on the posit ion of Cogeco Cable on
the proposals and options contained in the working document.
The Commission should be commended for taking the lead and
initiating this proceeding. As we all know, the Canadian broadcasting
system and the broadcasting industry participants are facing
unprecedented new challenges in the world of digital video
programming on demand, everywhere, any time, and on any delivery
platform. We must all adapt sooner rather than later to this new
paradigm.
We must however do so within the statutory parameters set out in the
Broadcasting Act in its present form, even though the broadcasting
industry has changed dramatically since the Act was last revised in
1991. We mus t therefore find ways to ach ieve the intended outcomes
that you have outlined in your notice of consultation without
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compromising the present requirements of the existing broadcasting
policy for Canada in subsection 3(1) of the Act.
I should add that the new regulatory framework resulting from this
proceeding must also contribute in the end to keeping Canadian
consumers connected to - and happy with - their Canadian
broadcasting system. Conversely, the new regulatory framework
should not contain any measures that provide an incentive for
Canadian consumers to disconnect from - or cut back their use of -
the Canadian broadcasting system. Our submissions reflect this
fundamental consideration as well .
We have made it very clear that we support the Commission’s
objective of making a small basic service available to Canadian
consumers. We have mentioned however that the exclusion of the
major American conventional television networks from this small
basic service would likely be perceived as contrary to the interests of
consumers by a good number of BDU c ustomers and would seriously
harm the Canadian broadcasting system down the line.
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We urge you not to forget that these services are - and will continue
to be - available free over-the-air to a large number of Canadian
households, that they do not add to the programming cost inputs of
the basic service, and that they have been part of the basic service
for over 60 years.
When Canadian consumers will actually realize that they will have to
subscribe to a basic tier that does not include major American
conventional television net works and to separately subscribe to have
access to them through their BDU, there could be an adverse
reaction, with some Canadian consumers blaming the government
and the regulator for giving from one hand more choice and flexibility
for discretionary tiers while taking away from the other hand the major
American conventional television networks from the basic tier.
We also made it very clear that we support greater choice and
flexibility for Canadian consumers when they subscribe to
discretionary television services on top of the basic tier. We do this
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already to the extent permitted by our contracts with our television
programming service suppliers. The major impediment to providing
even more choice is the prohibitions and unduly penalizing terms that
some television programming service suppliers, both Canadian and
non-Canadian, are imposing on independent BDUs such as Cogeco
Cable with the clear purpose of maximizing penetration of their
programming services by limiting the packaging flexibility at the level
of the retail sales in the broadcasting distribution market. Unless you
see to it that these terms are no longer allowed or by television
programming service suppliers, whether Canadian or non-Canadian,
the much heralded new era of greater choice and flexibility will simply
not happen for the most popular television programming services
available on cable or satellite. There again, many Canadian
consumers could be very unhappy with this outcome, and they could
blame the government and the regulator for failing to actually deliver
the promised goods.
In this regard, although we are not of the view that wholesal e rates of
programming services that are set on penetration-based rate cards
should be completely prohibited in all possible forms, we believe
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however that they must be clearly circumscribed and closely
supervised by the Commission when they involve vertically integrat ed
entities that have clearly made abusive use of them in the past. We
are still stung by such abuse, and we certainly do not want to see
them invoked as as precedents for future affiliation agreement
renewals. In an environment of freedom of choice for Canadian
consumers, it is not for the independent BDUs such as us to take all
the risks resulting from the loss of subscribers or of subscription or
advertising revenues incurred by television programming services.
That being said, does the implementation of a small basic service
need to be tied in any way to a retail price cap regime, or does the
marketing of flexible packaging options or the composition of build-
your-own-package options need to be managed and regulated by the
Commission? The answer is absolutely no.
What are the real concerns here, from a regulatory policy
perspective? Is it that, if flexibility to add some programming services
to the new small basic service is given to BDUs, the VI entities will
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game the system by including their own television programming
services in a once again large basic service, thus driving upwards the
retail price of basic at the expense of Canadian consumers? If so,
there is a much simpler and cost effective way to prevent that from
happening instead of re-regulating retail rates for cable and satellite
services across the whole industry. For instance, the Commission
can specify that the flexibility to add to the new small basic service
will be limited to certain unrelated services such as the major
American conventional television networks, and that VI entities may
not include their own related discretionary programming services in
that small basic service unless they are mandated for basic
distribution pursuant to section 9(1)(h) of the Act.
Is there a concern that VI entities will unduly and unfairly bundle and
promote their own related programming services under the build-
your-own package option? If so, there is again a much simpler and
cost effective way to prevent that from happening rather than micro-
managing the content of packages and their promotion in the
marketplace across the entire industry. The Commission needs only
to ensure that the VI Code is incorporated into the regulations and
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precludes VI entities from stacking their pack ages only with their own
related programming services.
This brings us to deal with a central point of our submission. In the
current unprecedented level of vertical integration reached in the
Canadian broadcasting and telecommunications industries, the
Commission must refocus its regulatory framework on dealing with
and disciplining the VI entities in order to achieve the intended
outcomes for the benefit of Canadian consumers, as opposed to
making general regulations that apply across the board to all
regulated Canadian programming service or BDU licensees, including
the non-integrated independent licensees with no market power. As
an independent BDU with less than 7% of the downstream
broadcasting distribution market and no financial interest in any
television programming service supplier, Cogeco Cable has no
opportunity or incentive to game the system at the expense of
Canadian consumers. What we care about is what our BDU
customers care about, and that includes a small affordable basic
cable service and flexible packaging options for all our customers,
whether they live in Ontario or in Quebec.
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The two options for the small basic service that you have outlined
three weeks ago in your working document do not include the one
that we proposed, mainly a predominantly Canadian small basic
service that could continue to include as well the major American
conventional television networks. This would involve no additional
programming cost for BDUs or their customers subscribing to the
small basic service.
If you are only prepared to consider an all-Canadian small basic
(Option A), or a basic service with unlimited fl exibility for BDUs to add
other services subject to a retail price cap regime (Option B), we
would feel compelled to opt for Option A. Re-regulating the retail
rates for the basic service under Option B would require the
Commission to establish a whole new price cap regime with related
methodologies, processes, cost studies, cost allocations between
basic cable and other bundled broadcasting and telecommunications
services, programming input cost monitoring, and price adjustment
mechanisms. In addition to the mere logistics involved, the regime
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would involve the usual inefficiencies and shortcomings usually
associated with price cap rate regulation, such as regulatory lag and
gaming. I would add that, in the highly vertically integrated state of
the system, it would not be possible to regulate retail pricing without
regulating as well wholesale prices for programming services
included in the basic service.
We otherwise agree with the proposals and options outlined by the
Commission dealing with the themes of pick and pay, build-your-own-
package, affiliation agreements, dispute resolution and the
distribution of non-Canadian programming services. We are
encouraged by the fact that the Commission appears determined to
discipline Canadian VI entities and large non-Canadian television
programming service suppliers with market power so as to ensure the
successful implementation of the new proposed regulatory
framework. You have our support for this, but in the end, we
absolutely need your support as well to make it really happen.
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On the shutting down of local television station transmitters, we note
the overwhelming opposition of Canadian consumers to this proposal
in the top 100-liked comments published on the CRTC website, and
we worry that Canadian consumers seem to believe that this
measure has been requested by Canadian BDUs while, in fact, the
measure has been proposed only by one private OTA broadcasting
group and by the CBC. As indicated in our comments, Cogeco does
not support the shutting down of local station transmitters. We do
however appreciate that the Commission, in its latest proposal,
understands the need to ensure that this would not lead to carriage
fees, which would of course make the basic service a lot more
expensive for Canadian consumers and hurt subscription levels and
revenues for discretionary programming services offered on top of the
basi c service.
Finally, we reiterate that we will need 18 months from the date of the
Commission’s policy decision to implement the proposed new
regulatory framework throughout our distribution systems. We submit
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to you that an implementation deadline of December 15, 2015 is
simply not realistic given the magnitude of the changes and the
logistics involved to make them fully operational throughout our cabl e
systems.
Thank you again for hearing us today. My colleagues and I will now
be pleased to answer any questions you may have.
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