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Decision CRTC 2001-171
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Ottawa, 12 March 2001 |
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Saskatchewan
Telecommunications (SaskTel)
Regina, Saskatoon, Moose Jaw, Prince Albert, Yorkton, Estevan,
Weyburn, Swift Current, North Battleford, Battleford, White City and
Pilot Butte, Saskatchewan 2000-1706-3 |
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30 October 2000 Public Hearing in Calgary |
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New cable distribution undertaking in Saskatchewan
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The Commission approves the
application by SaskTel to establish a new cable system that will serve the
Saskatchewan communities listed above. The licensee will offer a fully
integrated Internet and broadcast service known as digital interactive video.
Using this system, consumers will be able to receive programming and access
the Internet using their television sets. SaskTel will distribute the service
using the network it has established to provide telephone service. |
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SaskTel is a crown corporation established by
the Government of Saskatchewan. Pursuant to the provisions of the
Direction to the CRTC (Ineligibility to hold broadcasting licences) the
Commission must ensure that the government does not directly control SaskTel
or unduly influence the content of the service. This authority will,
therefore, only be effective and the Commission will only issue the licence
when the applicant has filed documents that clearly demonstrate that members
of its board of directors are appointed for fixed terms and may not be
removed at the pleasure of the cabinet, as is currently the case. The
Commission is also, by majority vote, imposing a condition of licence that
prohibits the licensee from operating a community channel. |
1. 9; |
The Commission approves the application
by SaskTel for a licence to carry on a cable distribution undertaking to
serve Regina, Saskatoon, Moose Jaw, Prince Albert, Yorkton, Estevan, Weyburn,
Swift Current, North Battleford, Battleford, White City and Pilot Butte.
Subject to the requirements of this decision, the Commission will issue a
Class 1 licence expiring 31 August 2007. |
2. |
The operation of this undertaking will be
regulated pursuant to the Broadcasting Distribution Regulations (the
regulations) and the licence will be subject to the conditions specified in
this decision and in the licence to be issued. |
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Description of the service |
3. |
SaskTel will provide a service called digital
interactive video (DIV). Using this system, viewers will be able to receive
programming and access the Internet using their television sets. Thus, it
will be possible for customers to connect with the Internet without a home
computer. |
4. |
The DIV service will provide all broadcasting
services required by the regulations and the Commission’s access rules. It
will also provide a number of discretionary television services, pay audio
and pay-per-view channels, as well as high-speed Internet access, e-mail,
local weather and other information of interest to customers. |
5. |
Conditions of licence and authorizations
relating to signal carriage may be found in the appendix to this decision. |
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Issues |
6. 9; |
Fourteen interveners supported the application
in all of its aspects. Among other things, they noted that SaskTel would
provide additional choice for consumers as well as additional support for the
production of Canadian films and video programs. |
7. |
Other interveners, however, either opposed the
application or raised issues related to it. These issues are discussed below. |
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Licensing a crown corporation |
8. |
SaskTel is the incumbent telephone company for
the province of Saskatchewan. It is also a provincial crown corporation. In
general, under the terms of Direction to the CRTC (Ineligibility to hold
broadcasting licences) (the direction), provincial governments and their
agents may not hold broadcasting licences. However, the direction provides
for an exception that would allow SaskTel to be licensed if it qualifies as
an "independent carrier." The direction defines an independent carrier as
follows: |
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"independent carrier" means a corporation that is either a Canadian
carrier within the meaning of the Telecommunications Act that is
owned by Her Majesty in right of any province, that was operating on August
6, 1996 and that continues to be operated as a Canadian carrier, or a
subsidiary corporation of the Canadian carrier, where
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(a) the Commission determines that the corporation is not directly
controlled by Her Majesty in right of any province, and
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(b) without limiting the generality of paragraph (a), the corporation
enjoys freedom of expression and journalistic, creative and programming
independence in the pursuit of its objects and in the exercise of its
powers.
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9. |
In their interventions, Access Communications
Co-operative Limited (Access), the Canadian Cable Television Association
(CCTA) and The Battlefords Community Cablevision Co-operative Limited
(Battlefords) indicated that they considered that SaskTel does not qualify as
an independent carrier under the direction to the CRTC cited above. |
10. |
Access noted that the provincial government
holds several powers over SaskTel. For example, the provincial cabinet
appoints SaskTel’s directors. It noted that the appointments are not for
specific terms so the cabinet could remove members of the board at any time. |
11. |
Battlefords noted that SaskTel is responsible to
the Crown Investments Corporation of Saskatchewan (CIC). CIC is responsible
for all of Saskatchewan’s crown corporations and is managed and controlled by
a board of directors that includes ministers of the provincial government.
The CIC has several important powers relating to SaskTel including the
approval of commercial and financial objectives, payment of dividends,
capital budgets, and the appointment of the Chief Executive Officer. |
12. |
Interveners argued that a corporation such as
SaskTel, whose operations could be so heavily influenced by government would
not enjoy the requisite freedom of expression and journalistic, creative and
programming independence required under the direction. |
13. |
SaskTel argued that it was not directly
controlled by the government, and that it enjoyed the editorial freedom
required under the direction. It considered that its board was independent
and noted that there was no requirement that government ministers be
represented on the board. The government could therefore not give direct
orders to the board but could only act through intermediaries, i.e. SaskTel's
board. SaskTel further stated that the first responsibility of board members
is to act for the good of the crown corporation. |
14. |
With respect to the degree of journalistic and
creative freedom enjoyed by SaskTel, the applicant noted that the government
has never interfered with the company’s existing Internet service or a
service operated by SaskTel that provides movies to hotels. It also
considered that there would be little journalistic activity involved in
operating a broadcasting distribution undertaking (BDU) since the prime
purpose of such an undertaking is to distribute signals provided by other
broadcasters and the signals that are carried are governed by the
Commission's regulations and policies. |
15. |
Finally, SaskTel presented an Order in Council
issued by the Government of Saskatchewan empowering SaskTel to "accept from
the Canadian Radio-television and Telecommunications Commission a licence to
operate a broadcasting distribution undertaking on the condition that such
licence is operated by Saskatchewan Telecommunications' officers and other
employees with freedom of expression and journalistic, creative and
programming independence in pursuit of this power." |
16. |
The Commission notes SaskTel's assurances that
it is not now directly controlled by the Government of Saskatchewan and
exercises the editorial independence required under the direction. It further
notes that the opportunities for journalistic and creative input for
operators of a BDU would be confined largely to the community channel.
SaskTel indicated that it did not propose to offer a community channel, at
least at the outset. |
17. |
The Commission, however, considers it
appropriate to adopt measures to ensure that SaskTel will continue to enjoy
the independence required under the direction. The Commission is especially
concerned that members of the applicant's board of directors may be removed
at the pleasure of the cabinet. This could lead to situations where undue
pressure might be exerted on board members concerning particular matters. At
the hearing, the applicant was asked to react to a suggestion that board
members be appointed for specific terms. In reply, Mr. Don Ching, president
of SaskTel, stated: |
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That I think is not only a welcome suggestion, but I believe that,
probably by year end, there will be, at least in policy if not in statute,
a set term for board appointees.
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18. 9; |
In light of the Commission's concerns and the
applicant’s statement cited above, the authority given in this decision will
only be effective, and the licence will only be issued when the applicant has
filed documents that clearly demonstrate that members of its board of
directors are appointed for fixed terms and may not be removed at the
pleasure of the cabinet, as is currently the case. |
19. |
Further, the Commission, by majority vote is
imposing a condition of licence stipulating that SaskTel may not offer a
community channel. SaskTel will instead discharge its obligation to support
Canadian programming by contributing 5% of its gross revenues derived from
its broadcasting activities to funds supporting Canadian programming, as
required by the regulations. |
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Involvement of a crown corporation in
broadcasting |
20. |
While not opposing competition in principle,
several interveners objected to a crown corporation entering a business where
private companies already compete. A number of private BDU operators
currently serve Saskatchewan residents, including local cable systems, the
Image Wireless Multipoint Distribution System and the Direct-to-home (DTH)
satellite services offered by Bell ExpressVu and Star Choice. Battlefords,
and several other interveners, were concerned that additional competition
from SaskTel could have a negative impact on certain aspects of the
operations of local cable systems, such as the community channel. |
21. |
SaskTel, for its part, considered that the
government’s 1996 Convergence Policy Statement and the subsequent Order in
Council which amended the eligibility criteria to hold a BDU licence, provide
clear evidence that the government considers it appropriate for crown
corporations to hold broadcasting licences. |
22. |
The Commission considers that, so long as
SaskTel meets the eligibility criteria set out in the direction, there is
nothing that prevents it from holding a broadcasting licence. |
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Fair competition |
23. |
Interveners such as the CCTA, Access and Shaw
Communications Inc. (Shaw) expressed concern that SaskTel’s entry into
broadcasting was premature, and that adequate safeguards were not in place to
ensure that it competed fairly. |
24. |
Some interveners were concerned that SaskTel
might offer its DIV service below cost for an extended period by
cross-subsidizing it with other utility or competitive services. |
25. |
SaskTel, on the other hand, considered that it
had met all of the Commission’s requirements for receiving a BDU licence.
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26. |
The Commission set out its policy on the timing
of the entry of telephone companies into cable’s core business in Public
Notice CRTC 1997-49
Applications by telephone companies to carry on broadcasting distribution
undertakings and Telecom Decision CRTC 97-8
Local competition. In summary, the Commission’s policy stipulates that
applications from telephone companies to enter cable’s core business should
not be entertained until rules removing regulatory barriers to effective
competition in local telephony are established. |
27. 9; |
More specifically, the Commission required that
in order to create conditions for effective competition in the local
telephone market, issues such as interconnection, unbundling and co-location
must be resolved, and the issue of local number portability must be
addressed. |
28. 9; |
In Telecom Order CRTC
2000-604, the Commission
approved tariffs filed by SaskTel to provide competitive local exchange
carriers with local interconnection and access to unbundled network
components equivalent to that available in other parts of Canada. SaskTel has
also taken steps to prepare to roll out local number portability. In light of
the above, the Commission considers that SaskTel has met the necessary
conditions to enter the BDU business in Saskatchewan. |
29. 9; |
SaskTel’s DIV service will involve bundling of a
high-speed Internet service with a BDU service. Both of these fall into the
category of competitive services. |
30. 9; |
In Telecom Decision CRTC
2000-150 SaskTel - Transition to
federal regulation (Decision 2000-150),
the Commission granted SaskTel forbearance from the regulation of retail
end-user Internet service. Forbearance was granted on the same terms and
conditions and from the same sections of the Telecommunications Act as
granted to other major incumbent telephone companies in Telecom Order CRTC
99-592 Forbearance from retail
Internet services. |
31. 9; |
With respect to interveners concerns about
cross-subsidization of SaskTel's DIV service with its utility services, the
Commission has established two requirements that address such concerns, as
discussed below. |
32. 9; |
First, in Decision
2000-150, the Commission found SaskTel's
definition of its utility and competitive segments in its split rate base
methodology to be consistent with current directives. SaskTel’s methodology
was reasonably in line with those of other telephone companies, with the
exception of two differences noted by SaskTel. The company has subsequently
taken steps to address the assignment methodology in question to reflect the
requirements of Telecom Decision CRTC 95-21 Implementation of regulatory
framework – Splitting of the rate base and related issues. |
33. 9; |
Second, in Decision
2000-150, the Commission also directed
SaskTel to file for approval its imputation test methodology, i.e., to
determine whether or not rates are compensatory. On 31 October 2000, SaskTel
filed for approval its imputation test methodology, which among other things,
would apply to bundled services. By letter dated 5 January 2001, the
Commission found SaskTel's proposal to be generally consistent with the
imputation test methodology approved for the former Stentor companies and
approved SaskTel's proposal as modified to include several changes. |
34. 9; |
The Commission considers that SaskTel’s
requirements related to establishing a split rate base will prevent the cross
subsidy of its DIV service by its utility services. Further, the requirement
of an imputation test will prevent anti-competitive pricing when the DIV
service is bundled with one or more of its tariffed telecommunications
services. |
35. 9; |
With respect to interveners' concerns about
cross-subsidization of SaskTel's DIV service with other competitive services,
the Commission notes that it has not imposed any restrictions with respect to
bundling on incumbent local exchange carriers that been awarded BDU licenses. |
36. 9; |
Some interveners noted that Decision 2000-150
indicated that a full review of SaskTel’s financial situation is expected to
be initiated coincidental to the upcoming proceeding to review the current
price cap regime for the other major incumbent telephone companies.
Interveners considered that it would be appropriate for the Commission to
wait until after the 18-month transitional period expires on 1 January 2002
before issuing a broadcasting licence to SaskTel. |
37. 9; |
The Commission, however, concludes that, with
SaskTel's split rate base methodology, the requirement for an imputation test
and the elimination of barriers to local competition, the necessary
mechanisms are in place to ensure that SaskTel will compete fairly with other
BDUs. |
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Carriage of distant signals |
38. 9; |
Access, the CCTA and Shaw noted that SaskTel
proposed to offer certain Canadian distant signals as part of its basic
service, contrary to the Commission’s distribution requirements for Class 1
licensees. |
39. |
In reply, SaskTel indicated that it had made an
error, and it would offer these channels as part of its discretionary
service. This is reflected in the signal authorizations set out in the
appendix. |
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Employment equity |
40. 9; |
The Commission encourages the licensee to
consider employment equity issues in its hiring practices and in all other
aspects of its management of human resources (PN
1992-59). |
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Secretary General |
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This decision is to be
appended to the licence. It is available in alternative format upon request,
and may also be examined at the following Internet site:
http://www.crtc.gc.ca |