Executive Summary
Regulatory approval of the application by Shaw Communications Inc. (Shaw) to effectively acquire all the broadcasting assets of Canwest Global Communications Corp. will make Shaw the largest vertically integrated media company in Canada. This has serious implications for the Canadian broadcasting system given the potential for self-dealing and anti-competitive behaviour which may negatively impact access and diversity. Given the unprecedented scope of vertical integration which would be created in the approval of this transaction, TELUS submits that the CRTC must adopt, as conditions of approval of this transaction, safeguards to limit any abuse of market power and anti-competitive behaviour by Shaw and its affiliates, particularly with respect to matters such as agreements with non-affiliated producers, programmers and broadcast distributors on linear and new distribution platforms. These safeguards must take the form of clear, unequivocal and enforceable rules.
Moreover, TELUS submits that the Commission must proceed with caution as it approves this transaction which will significantly alter the landscape of the Canadian broadcasting industry. Accordingly, as further discussed in a parallel submission filed by TELUS today with respect to the renewal of Shaw’s cable licenses, TELUS submits that the Commission must retain its powers to make amendments to conditions of license and thus it should renew Shaw’s cable licenses for a two-year term only. This prudent approach would follow that taken in A group-based approach to the licensing of private television services in which the Commission indicated that it would renew for a one-year term only the broadcasting licenses of all television licensees controlled by a designated group in order “to allow the broadcasting industry to adapt to both the new group-based approach set out in this regulatory policy and the Commission’s determinations resulting from the additional proceedings
With respect to tangible benefits, both Shaw’s assessment of the value of the transaction and Shaw’s proposal for a “pseudo” benefits package makes a mockery of the Commission’s policy which was established to ensure contributions to the broadcasting system as a tradeoff for the concentration that flows from such merger and acquisition activity. For all intents and purposes, Shaw’s application contains no tangible benefits package at all (as will be further explained below). While Shaw argues that the Commission should look at the so-called “intangible benefits” of this transaction, TELUS submits that this argument is severely flawed and that a full and proper tangible benefits package is warranted in this case to help offset the reduction in diversity that will result from the approval of this transaction. Without such tangible benefits, there would seem to be little value and considerable risk in approving this transaction.
Canwest’s recourse to creditor protection has skewed the reality of a very lucrative deal. The problems in which Canwest found itself were mostly the result of its crippling debt load as we entered the worst recession since the 1930s.
The demise of the former ownership group had nothing to do with the profitability of Canwest itself, especially as it started to reap the benefits and synergies resulting from the acquisition of the Alliance Atlantis specialty services. Rather, it had everything to do with bad timing, high leveraging of assets on the eve of a global economic crisis and, among other things, the coincident collapse of advertising revenues.
Shaw saw a great deal in buying Canwest and made a strategic investment in doing so. Shaw cannot be begrudged for making a possibly smart business decision (buying highly profitable but undervalued assets at a distressed price) but it should not be given special exemption from a long-standing and cornerstone Commission policy that supports the greater broadcasting system for having done so. This acquisition of very profitable broadcast properties, which we estimate at over a $2 billion value, must entail the payment of a full and proper benefits package, that amounts to at least $200 million, and exception must not be made based on the proposition that the so-called rescue of Canwest is benefit enough.
TELUS’ recommendations to the Commission in approving this transaction can be summarized as follows:
• Establish safeguards by way of conditions of license which should include at a minimum:
o The strict prohibition on content exclusives on all platforms
o A reverse onus for handling complaints of undue preference and interim relief such as providing access to content pending resolution of a complaint. Also establishment of a policy of taking into consideration the cumulative effect of multiple instances of preferences granted to an affiliate, undue or not.
o Filing of all existing affiliation agreements between Canwest and Shaw in order to set a baseline for the purposes of assessing undue preference and a requirement to file all future affiliation agreements between Shaw and its affiliated programming undertakings.
o Enable either party to elect to use commercial arbitration in the event of difficult negotiations to ensure access to content by competitors without undue delay.
o A moratorium on any value-for-signal regime for integrated broadcasters for two years after which time rates for Canwest Global would be set through commercial arbitration at rates which do not exceed rates paid carriage of CTV for same terms and conditions. Moreover, in order to guard against self-dealing. payment would be made by all distributors, including Shaw, into an independent production fund which would manage the money on Canwest’s behalf.
o Full structural separation between carrier and programming operations to prevent any sharing of board members or employees between any of the Shaw affiliated companies.
• The Commission should renew Shaw’s cable licenses for a two-year term only in order to retain the power to make changes to conditions of license in the short term as needed due to the quickly changing environment and the unknown potential consequences to the broadcasting system of this transaction.
• The Commission should require that Shaw consent to a full and appropriate tangible benefits package:
o It must be based on the full value of the transaction which is valued at over $2 billion;
o It must not include as part of the 10% calculation any benefits which were previously obligated under the Canwest/Alliance Atlantis transaction but Shaw must be obligated to perform those prior obligations in addition to the new benefits
o At least 75% of the benefits must be dedicated to third party initiatives such as independent production.
• The Commission should impose strict obligations on Shaw with regard to the auditing and reporting of all planned expenditures.
Monday, August 23, 2010
Friday, August 13, 2010
Intolerance around net neutrality does not augur well for diversity of thought
The recent attacks on Google and Verizon over their temerity to seek a reasonable compromise around what many view as a complex issue, struck me as further evidence that the concept of democracy that I grew up with is in trouble. In trouble in part due to the ease with which the Internet allows the like-minded to reinforce mutual ideology to the exclusion of other perspectives. That has to be a bit ironic given the wonderful promise of an open Internet is to promote freedom, choice and diversity.
Maybe my fear is just intellectual hyperventillation, but increasingly I worry that compromise and dialogue are being sacrificed to ever more partisan perspectives in all elements of society from our Parliament to the coffee shop.
It hit me today that the intellectual differences between those vocal Internet activists that can only accept a single vision of the Net and the Tea Party, that came out today attacking net neutrality, are not so great. Their political religion may be miles apart but both groups seem to feed on mutual intolerance for those that hold different views. And if that is right, then maybe both the Tea Party and some of the net neutrality zealots share kinship with the Iranian bullies that stone women who succumb to love in an atmosphere where hate governs. An atmosphere of hate derived from extreme orthodoxy that does not tolerate deviance in thought or action.
I have always believed that the golden age of democracy that spawned so many social programs occurred when people were able to debate, to accept that maybe the other side had a point and that it was ok to give up and compromise if there was a chance compromise might create something better, not perfect, but better,for society.
Now if I had to pick a vision to side with, I would want to help the net neutrality gang, because their heart seems in the right place, (and their overarching vision reinforces many of my own) :-).An an open network to facilitate a free flow of information is a very cool idea. But surely that is a goal that does not need to be fuelled by anger and intransigence given how many people would sign up to that principle.
However if that's the case, then don't the neutrality activists have a greater responsibility to stop sniping from the gallery and reach out to the other side to make this better world they seek, a reality. To me that requires finding ways to compromise with those you may not agree with. That's how to make things happen and make the world work in some degree of harmony. Google and Verizon did not get it all right for many but through compromise they moved the yardsticks a lot further than a polarized political debate has in the last 5 years.
Then again maybe that's just the view of a liberal democrat and that's an ideology too. But my gut tells compromise is what feeds diversity and diversity is what fuels democracy.
Diversity has to imply we all can't be right all the time, because if we were we wouldn't need open access to new ideas in the first place. So open the tent a bit on the net neutrality side or you may be waking up to Sarah Palin as your next President.
Maybe my fear is just intellectual hyperventillation, but increasingly I worry that compromise and dialogue are being sacrificed to ever more partisan perspectives in all elements of society from our Parliament to the coffee shop.
It hit me today that the intellectual differences between those vocal Internet activists that can only accept a single vision of the Net and the Tea Party, that came out today attacking net neutrality, are not so great. Their political religion may be miles apart but both groups seem to feed on mutual intolerance for those that hold different views. And if that is right, then maybe both the Tea Party and some of the net neutrality zealots share kinship with the Iranian bullies that stone women who succumb to love in an atmosphere where hate governs. An atmosphere of hate derived from extreme orthodoxy that does not tolerate deviance in thought or action.
I have always believed that the golden age of democracy that spawned so many social programs occurred when people were able to debate, to accept that maybe the other side had a point and that it was ok to give up and compromise if there was a chance compromise might create something better, not perfect, but better,for society.
Now if I had to pick a vision to side with, I would want to help the net neutrality gang, because their heart seems in the right place, (and their overarching vision reinforces many of my own) :-).An an open network to facilitate a free flow of information is a very cool idea. But surely that is a goal that does not need to be fuelled by anger and intransigence given how many people would sign up to that principle.
However if that's the case, then don't the neutrality activists have a greater responsibility to stop sniping from the gallery and reach out to the other side to make this better world they seek, a reality. To me that requires finding ways to compromise with those you may not agree with. That's how to make things happen and make the world work in some degree of harmony. Google and Verizon did not get it all right for many but through compromise they moved the yardsticks a lot further than a polarized political debate has in the last 5 years.
Then again maybe that's just the view of a liberal democrat and that's an ideology too. But my gut tells compromise is what feeds diversity and diversity is what fuels democracy.
Diversity has to imply we all can't be right all the time, because if we were we wouldn't need open access to new ideas in the first place. So open the tent a bit on the net neutrality side or you may be waking up to Sarah Palin as your next President.
Tuesday, August 3, 2010
TELUS calls for equal treatment for all carriers under open environment for foreign investment
The following is a summary of our submission to Industry Canada on liberalizing Canada's restrictions on foreign investment in communications
TELUS is not opposed to competing in an open market as long as the rules for Canadian enterprises are the same as for shareholders of foreign carriers. In fact TELUS has consistently supported liberalization of foreign investment rules over the past 10 years, while still investing $25 billion in a national growth strategy
The consultation paper presents the following three options for consideration:
1. Increase the limit for direct foreign investment in broadcasting and telecommunications common carriers to 49 percent;
2. Lift restrictions on telecommunications common carriers with a 10 percent market share or less of total telecom revenues; or
3. Remove telecommunications restrictions completely.
All of the Government’s proposals fail its stated objectives.
• Option#1 makes no real difference in terms of attracting new investment, as it only moves the real FDI threshold from 46% direct/indirect to 49% direct.
• Options #2 and #3 would discriminate against companies and shareholders that have contributed the most to telecommunications investment and innovation in Canada in favor of foreign enterprises.
We worry that any asymmetric law may remain in force for decades with deep and unintended consequences in terms of an erosion of the value of domestic carriers in Canadian communications.
For instance, such asymmetry could provide opportunities for large foreign carriers that already benefit from scale economies to leverage even greater North American-wide scale in a fashion denied to Canadian companies that have invested tens of billions of dollars in domestic infrastructure and employ tens of thousands of Canadians.
Fairness and competitive neutrality must prevail over any attempt to legislate short-term advantages for a select class of carrier shareholders that may be looking for a change of control or highly leveraged financing to support a risky business case.
TELUS also considers that an asymmetric law if passed could be subject to challenge under our international obligations in the WTO in that such a law would effectively discriminate against most shareholders of Canadian companies.
TELUS has proposed a fourth option:
Remove the restrictions completely on all telecommunications carriers and broadcast distributors, while maintaining restrictions on the ownership of broadcast channels and specialty services and adopting safeguards with respect to vertical integration of broadcast carriers.
The point of opening up foreign investment is not simply to obtain a lower cost of capital. The Canadian financial market can already deliver a lower cost of capital today. The problem is that both Canadian and international debt markets have dried up and foreign investors are only interested in equity positions that allow for a change of control.
Change of control is the logical outcome of the liberalization of FDI. That is why these rules are referred to as foreign ownership rules. That is not a bad thing. Most of our trading partners have already adopted open regimes without any adverse affect.
However we are not aware of any of our key trading partners, that have adopted rules that provide increased opportunity to foreign investors while denying it to domestic enterprises.
TELUS is not opposed to competing in an open market as long as the rules for Canadian enterprises are the same as for shareholders of foreign carriers. In fact TELUS has consistently supported liberalization over the past 10 years, while still investing $25 billion in a national growth strategy
The point of liberalization of FDI is to maximize the benefits of more open markets, increased scale and innovation, and investment for all consumers and all Canadian enterprises, not simply the shareholders of a handful of new wireless entrants.
Option#3 is equally asymmetric in that it would exclude any carriers and distributors of video that are regulated pursuant to Broadcasting Act from the benefits of liberalization.
Given the realities of convergence, Option#3 would effectively exclude virtually all Canadian telecommunications carriers from benefitting from reform since all carry voice, video and data services on integrated networks.
Further, all telecommunications carriers, even stand-alone wireless carriers and ISPs, now carry a mix of video, voice and data traffic on their networks, some of which may be considered broadcasting and therefore subject to the Broadcasting Act
If government cannot reform its rules in a fashion that does not discriminate against most existing Canadian carriers and distributors, it should postpone any change until it can enact real reform, in order to protect against changing the law in a fashion that favors a select few.
However, we believe that regulation and enforcement of broadcast carriage rules in a way that removes opportunities for self-dealing by integrated carriers regardless of nationality and requires clear divestiture of content properties prior to any change resulting in control by foreign owned entities should provide sufficient comfort for government to fully liberalize the carriage/distribution market without delay.
To enable this we propose that government endorse a clearer separation of carriage and content by granting the CRTC explicit powers to maintain protections for programming-related decisions, such as Canadian content rules or the implementation of rules relating to the structural separation of carriage and content businesses to prevent abuse of vertical integration.
It would seem easy therefore to make clear in the rules governing liberalization, that any sale of a telecommunications or cable company to a foreign entity can only be permitted where any common content assets (radio, TV and specialty channels) are first fully divested from the carriage and distribution assets. Under such a model it would be clear that broadcasting properties like radio, TV and specialty channels are not for sale to foreign entities, and if an integrated carrier wanted to avail itself of the benefits of foreign ownership, it must divest such assets prior to any sale taking effect.
If culture and diversity are to be respected then there must be clear safeguards in place to prevent self-dealing and undue preference/disadvantage arising from vertical integration even if there are not changes in foreign control. Vertical integration, and not foreign ownership, is of greater concern today in terms of access, choice and diversity.
Since self-dealing is more likely to occur where companies actually are vertically integrated than in circumstances where content is broadly controlled, perhaps the time for concern about access is now, as effective control over key broadcast content continues to be consolidated and integrated into Canada’s three largest cable companies.
TELUS is not opposed to competing in an open market as long as the rules for Canadian enterprises are the same as for shareholders of foreign carriers. In fact TELUS has consistently supported liberalization of foreign investment rules over the past 10 years, while still investing $25 billion in a national growth strategy
The consultation paper presents the following three options for consideration:
1. Increase the limit for direct foreign investment in broadcasting and telecommunications common carriers to 49 percent;
2. Lift restrictions on telecommunications common carriers with a 10 percent market share or less of total telecom revenues; or
3. Remove telecommunications restrictions completely.
All of the Government’s proposals fail its stated objectives.
• Option#1 makes no real difference in terms of attracting new investment, as it only moves the real FDI threshold from 46% direct/indirect to 49% direct.
• Options #2 and #3 would discriminate against companies and shareholders that have contributed the most to telecommunications investment and innovation in Canada in favor of foreign enterprises.
We worry that any asymmetric law may remain in force for decades with deep and unintended consequences in terms of an erosion of the value of domestic carriers in Canadian communications.
For instance, such asymmetry could provide opportunities for large foreign carriers that already benefit from scale economies to leverage even greater North American-wide scale in a fashion denied to Canadian companies that have invested tens of billions of dollars in domestic infrastructure and employ tens of thousands of Canadians.
Fairness and competitive neutrality must prevail over any attempt to legislate short-term advantages for a select class of carrier shareholders that may be looking for a change of control or highly leveraged financing to support a risky business case.
TELUS also considers that an asymmetric law if passed could be subject to challenge under our international obligations in the WTO in that such a law would effectively discriminate against most shareholders of Canadian companies.
TELUS has proposed a fourth option:
Remove the restrictions completely on all telecommunications carriers and broadcast distributors, while maintaining restrictions on the ownership of broadcast channels and specialty services and adopting safeguards with respect to vertical integration of broadcast carriers.
The point of opening up foreign investment is not simply to obtain a lower cost of capital. The Canadian financial market can already deliver a lower cost of capital today. The problem is that both Canadian and international debt markets have dried up and foreign investors are only interested in equity positions that allow for a change of control.
Change of control is the logical outcome of the liberalization of FDI. That is why these rules are referred to as foreign ownership rules. That is not a bad thing. Most of our trading partners have already adopted open regimes without any adverse affect.
However we are not aware of any of our key trading partners, that have adopted rules that provide increased opportunity to foreign investors while denying it to domestic enterprises.
TELUS is not opposed to competing in an open market as long as the rules for Canadian enterprises are the same as for shareholders of foreign carriers. In fact TELUS has consistently supported liberalization over the past 10 years, while still investing $25 billion in a national growth strategy
The point of liberalization of FDI is to maximize the benefits of more open markets, increased scale and innovation, and investment for all consumers and all Canadian enterprises, not simply the shareholders of a handful of new wireless entrants.
Option#3 is equally asymmetric in that it would exclude any carriers and distributors of video that are regulated pursuant to Broadcasting Act from the benefits of liberalization.
Given the realities of convergence, Option#3 would effectively exclude virtually all Canadian telecommunications carriers from benefitting from reform since all carry voice, video and data services on integrated networks.
Further, all telecommunications carriers, even stand-alone wireless carriers and ISPs, now carry a mix of video, voice and data traffic on their networks, some of which may be considered broadcasting and therefore subject to the Broadcasting Act
If government cannot reform its rules in a fashion that does not discriminate against most existing Canadian carriers and distributors, it should postpone any change until it can enact real reform, in order to protect against changing the law in a fashion that favors a select few.
However, we believe that regulation and enforcement of broadcast carriage rules in a way that removes opportunities for self-dealing by integrated carriers regardless of nationality and requires clear divestiture of content properties prior to any change resulting in control by foreign owned entities should provide sufficient comfort for government to fully liberalize the carriage/distribution market without delay.
To enable this we propose that government endorse a clearer separation of carriage and content by granting the CRTC explicit powers to maintain protections for programming-related decisions, such as Canadian content rules or the implementation of rules relating to the structural separation of carriage and content businesses to prevent abuse of vertical integration.
It would seem easy therefore to make clear in the rules governing liberalization, that any sale of a telecommunications or cable company to a foreign entity can only be permitted where any common content assets (radio, TV and specialty channels) are first fully divested from the carriage and distribution assets. Under such a model it would be clear that broadcasting properties like radio, TV and specialty channels are not for sale to foreign entities, and if an integrated carrier wanted to avail itself of the benefits of foreign ownership, it must divest such assets prior to any sale taking effect.
If culture and diversity are to be respected then there must be clear safeguards in place to prevent self-dealing and undue preference/disadvantage arising from vertical integration even if there are not changes in foreign control. Vertical integration, and not foreign ownership, is of greater concern today in terms of access, choice and diversity.
Since self-dealing is more likely to occur where companies actually are vertically integrated than in circumstances where content is broadly controlled, perhaps the time for concern about access is now, as effective control over key broadcast content continues to be consolidated and integrated into Canada’s three largest cable companies.
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