Canada: CRTC Denies BCE’s Application To Acquire Astra

Last Updated: October 22 2012
Article by Scott M. Prescott

Introduction

On October 18, 2012, in Broadcasting Decision CRTC 2012-574, the Canadian Radio-television and Telecommunications Commission (CRTC or Commission) issued its much-anticipated decision on the application by BCE Inc. (BCE) to acquire effective control of the broadcasting undertakings operated by Astral Media Inc. (Astral).

The Commission has denied the application by BCE for authority to change the effective control of Astral's broadcasting undertakings. The Commission concluded that BCE failed to demonstrate that the transaction would provide "significant and unequivocal benefits to the Canadian broadcasting system and to Canadians sufficient to outweigh the concerns related to competition, ownership concentration in television and radio, vertical integration and exercise of market power."

BCE's application to acquire Astral was considered by the Commission as part of a five-day public hearing beginning on September 10, 2012 in Montréal, Québec. During that proceeding, the Commission examined the Applicant and Interveners on a number of issues. These issues included questions relating to BCE's post-transaction market power and the impact the acquisition of Astral would have on diversity of voices in Canada, the overall value of the transaction and the tangible benefits package.

The Commission noted that the review of ownership transactions is an essential element of the Commission's regulatory and supervisory mandate under the Broadcasting Act (the Act). Since the CRTC does not solicit competitive applications for changes in effective control of broadcasting undertakings, the CRTC places the onus on the applicant to demonstrate, in a public process, that approval is in the public interest, that the benefits of the transaction are commensurate with the size and nature of the transaction, and that the application represents the best possible proposal in the circumstances for the Canadian broadcasting system as a whole.

BCE's Application

BCE submitted that its acquisition of Astral would serve the broader public interest because its ownership of Astral's radio and television assets would enable it to compete more effectively with foreign over-the-top service providers in Canada. BCE emphasized that its objective is to enhance the service it provides to Canadian consumers and content creators, and that it would strive to showcase the content of Canadian creators by ensuring that all Canadian distributors are able to offer BCE's content on their various platforms.

During the hearing,BCE agreed to accept a condition of licence requiring compliance with the Vertical Integration Code of Conduct, as a means to address intervener concerns about its increased market power in both the English- and French-language television markets. BCE also reassessed the value of its initially proposed transaction, which resulted in an increase in the value of its tangible benefits package to $241 million. 

Vertical Integration, Diversity of Voices and Market Dominance

Several of BCE's competitors, including Rogers, TELUS, Cogeco, Québecor and the Canadian Cable Systems Alliance (CCSA), intervened and expressed concerns about BCE's dominance in the television program rights market following its proposed acquisition of Astral. They pointed to the ownership thresholds set out in Broadcasting Public Notice CRTC 2008-4, Diversity of Voices, and asserted that if the transaction were to be approved, BCE would, at a minimum, control between 35% and 45% of the total television audience share, a fact which requires the CRTC's careful examination of the transaction. They argued that approval of the acquisition would provide BCE's programming arm, Bell Media, with an even greater ability to harm competitors by demanding unreasonable terms of carriage for access to its television services on the linear platform, and by refusing to provide access to its specialty programming for distribution on its competitors' video on demand, broadband and mobile platforms. 

To safeguard competition and protect consumers, these competitors proposed a range of remedies. Some of BCE's competitors (most notably Québecor, Cogeco and the CCSA) encouraged the CRTC to deny the application in its entirety. Rogers proposed that the CRTC issue an order requiring BCE to divest of Astral's English-language specialty and pay television services. TELUS, for its part, argued that the CRTC should strengthen the Vertical Integration Code of Conduct and proposed a behavioural remedy that would limit BCE's ability to abuse its market power by identifying specific types of conduct that would be prohibited.

In issuing a complete denial, the Commission noted that the application raised issues that involved many intersecting objectives and policies and speak directly to the health and sustainability of the Canadian broadcasting system. The Commission went on to point out that the proposed transaction would not only remove the last major independent, non-integrated broadcaster from the system, but transfer Astral's undertakings to the largest vertically integrated broadcaster and telecommunications service provider in Canada.

The Commission took the view that the proposed transaction warranted close scrutiny due to the increased concentration of ownership and market dominance in television and radio in both English- and French-language markets.

Several indicators of market power were highlighted by the Commission in its decision including the following:

  • In the English-language market, the combined BCE/Astral viewing share, including joint ventures, would be at 42.7%. The Commission considered that, in the case of the joint ventures, even in the absence of clear-cut control, it would be unreasonable to separate a 50% ownership position from the significant role in the operation and management of the services that such a party would possess.
  • In the French-language market, the combined viewing share of BCE/Astral services would represent 24.9% of viewing to Canadian services, with viewing to the joint ventures representing an additional 8.2%, for a total viewing share of 33.1%.

In the English-language television market, the Commission also noted that a combined BCE/Astral would control an unprecedented amount of total revenues and viewing. In addition, BCE would increase its already significant share of Category A discretionary services which, as must-carry services, would give BCE considerable negotiating power with other distributors. The Commission also concluded that the ability to negotiate for every program rights window with programming suppliers and advertisers, when combined with BCE's size and ability to "bulk buy," could ultimately reduce competition.

In the French-language television market, the addition of Astral's large portfolio to the successful sports services held by BCE would increase the already significant level of concentration in discretionary services. The Commission noted that BCE, as a vertically integrated company, already possesses a distribution, wireless and wireline infrastructure. The Commission expressed the view that BCE did not demonstrate how the proposed transaction, which would result in the vast majority of French-language programming services being held by two large, vertically integrated competitors, would invigorate competition.

The Commission also noted that while much of the discussion focused on television, BCE made no firm commitments regarding additional local and spoken word radio programming, or promotion and airplay of emerging Canadian artists. Further, BCE did not provide details on its plan to invest in Astral's radio operations and news. The Commission determined, therefore, that BCE did not discharge its burden to demonstrate how the combination of the Bell Media and Astral radio stations would be beneficial to Canadian radio listeners and the radio sector as a whole.

In view of these concerns, the Commission concluded that a transaction of this magnitude would adversely affect competition and diversity in the Canadian broadcasting system and thereby threaten its ability to achieve the policy objectives set out in the Act. The Commission also noted that it is mindful that a healthy communications system also requires entities of various sizes that are able to compete and innovate in a fair environment.

The Commission considered that approval would result in a significant increase in BCE's level of market power and that the regulatory framework for vertical integration would not be sufficient to effectively address disputes and facilitate program availability and distribution.

Ultimately, the Commission concluded that BCE failed to discharge its burden and demonstrate that this transaction is in the public interest. The Commission was not persuaded that the transaction would provide significant and unequivocal benefits to the Canadian broadcasting system and to Canadians.

As a result, the Commission denied the application by BCE to acquire Astral.  

Conclusion

This proceeding garnered a significant amount of media attention and the decision will likely surprise many. The decision was highly anticipated, not only for its impact on the Canadian broadcasting system, but also because it is the first major decision issued by the CRTC under the leadership of the new Chair Jean-Pierre Blais. Although this was not a public policy proceeding, many of the issues raised, in particular issues of consolidation, diversity or voices and market dominance, touched on broadcasting policy matters.

By denying BCE's application, the Commission established a key precedent that will impact the Canadian broadcasting industry for years to come.

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