TELUS comments on Bell’s new proposal to acquire Astral Media

Sugar_Maple_LeafOn April 5th, TELUS filed written comments  with the CRTC regarding a 2nd application by Bell Media Inc. (“Bell”) to acquire Astral Media.  Bell’s initial application to acquire the company was denied by the Commission in October 2012.  TELUS is once again opposing this acquisition by Bell as it did in Round 1 because it does not consider that the current framework established by the CRTC to address concerns relating to vertical integration can withstand any further increases in market power by any of the large vertically integrated players.  See the discussion relating to the incentives and opportunity for anti-competitive behaviour discussed in an earlier blog.

The CRTC’s review of the first application focused on Bell’s new method for calculating viewership share and Bell’s proposal to divert tangible benefits away from the broadcasting industry and apply them to telecommunications network upgrades in the North.  Focus on these issues obscured debate on the fundamental question of whether this level of media concentration and vertical integration should be allowed at all and if it is determined that it should, what changes to Commission policy are required to account for it and ensure that any risks to Canada’s competitive marketplace for broadcasting and telecommunications are mitigated.

Now we have the opportunity to take a second sober look at the impact this transaction would have on competition in Canada’s communications market.  The CRTC can and must deal with competition issues arising in the broadcasting and telecommunications industry (we anticipate that Bell will argue that the CRTC need not do so because Bell has reached a “Consent Agreement” with the Competition Bureau).  Prior to this proposed transaction the CRTC, as the expert body mandated by Parliament to oversee Canada’s broadcasting and telecommunications markets, had already recognized the diversity and competitive concerns of increasing concentration and took measures to protect competition when it adopted its framework to address vertical integration.

However, because of the unprecedented impact of this and other transactions, the Commission must undertake an assessment of this transaction and the cumulative effect of this and other transactions on market power and its impact on competitive markets.  Let’s recall that this is a significant transaction which would transfer to Bell more popular television services (including the very popular TMN, The Movie Network), 77 radio stations which when added to the stations already owned by Bell would make it the biggest radio operator in Canada by far, and also a significant outdoor advertising business which although not subject to the oversight by the CRTC should be factored into the equation because Bell will wield significant control over advertising availabilities in the event that this transaction is approved.

The CRTC has established the framework for reviewing ownership change applications in its Diversity of Voices Policy.  TELUS considers however that the Diversity of Voices policy is ill-equipped to deal with the issues of market power in today’s communications market place.  This policy maintains a silo approach to assessing market power which is inadequate to properly assess the impact of an extremely high concentration of content services coupled with vertical integration into all forms of distribution networks.  There are guidelines for television ownership and different guidelines for radio ownership but no guidelines address the market power of TV and radio ownership combined, specifically, there is no substantive reflection of the cumulative effect on market power of ownership interests held in both those sectors on a national scale.  Accordingly, TELUS submits that the Diversity of Voices policy no longer provides adequate guidance to assess a transaction of the magnitude proposed by Bell and Astral.

It is important to fully recognize the importance of control of the media.  There is no doubt that Canadians are influenced by what they see and hear in the media and that TV and radio remain the most widespread and trusted sources of information for the Canadian public.  Attitudes and beliefs are shaped by the programming they experience and the information they are given.  It is not just news and information programming which influences public opinion, but also subtle messaging provided in all forms of programming.  Accordingly, there is substantial risk in allowing incentives for anti-competitive behaviour to infiltrate Canada’s media.

Advertising on TV and radio is still the predominant means of reaching audiences.  Advertising is particularly important for the wireless industry which is one of the top industries for advertising spending.  Accordingly, control over advertising by a major wireless carrier such as Bell provides incentive and opportunity to use this control over advertising to gain a competitive advantage over competing wireless providers.  The same principle holds true for advertising by competing distributors for other network services such as television distribution and ISP services.  For example, Optik TV as a new entrant television provider invests significant money in advertising its new service.  The concern is very real that advertising opportunities may be denied to competitors, or reduced to less favourable times, or rendered less effective due to the proximity of advertisements with competing services.

Over and above purchased advertising, there is a concern that vertically integrated companies are subtly (and sometimes not so subtly) influencing public/consumer opinion by making their corporate brands the most pervasive.  The following are a few examples of how VI companies are doing this.  For example, some vertically integrated companies are taking the opportunity to make inappropriate “plugs” for affiliated services in various types of programming, including most egregiously in news and public affairs programming.    TELUS notes a recent sportscast on Global Television’s noon news which touted the availability of an upcoming big televised fight on Shaw’s pay-per-view service.[1]  There is no mention of the same programming being also available on competitors’ services – it was most certainly available on TELUS’ Optik TV service.  The impact of this “plug” for Shaw’s PPV/television service during a sportscast is that it might have left some viewers with the impression that the programming was only available on Shaw, prompting consumers to switch to Shaw for their television service.  It is not in the public interest to permit the broadcast media to be commercially driven in this way.   Many consumers will not take the time to verify accuracy of what they see/hear or perceive in the information they have been provided, but they should expect and deserve full and accurate reporting.  Accordingly, the value of a “plug” for affiliated services in “trusted programming” is extremely high, much more valuable than paid advertising spots.

In reviewing this transaction, the CRTC must also consider the effect created by the high concentration of ownership of many content services, both television and radio which provides the opportunity to leverage content and multiply programming services.  Owning content is unlike other goods and services.  The same content can be used and sold over and over again in different forms, different packages.   This provides a significant advantage over any other independent programming service which would need to acquire a full slate of content in order to launch a new service.  A perfect example of leveraging content is Shaw’s BC One which leverages content from its Global television service as well as its local radio stations. The ability of other programming services to compete against a programming service from a highly concentrated group of programming services becomes more and more difficult because of the greater investment required of an independent service.  And let’s not forget the power of cross-promotion of programming services.  The more programming services one owns, the greater the ability to market related programming services.  Bell does this quite successfully, for example, with the rebranding of the A Channel to CTV2 and cross-promoting what’s on each of these networks.[2] Accordingly, assessing the current holdings of broadcast groups, i.e., taking a snapshot of their market share at this point in time, is insufficient to fully grasp the potential market power of these highly concentrated broadcasting groups.

Ultimately, the ability for Bell (or any other VI company) to control access to content, acting on incentives to foreclose the market to competitors, remains a significant concern for TELUS.  TELUS considers that the Commission’s initial decision to deny Bell’s acquisition of Astral last October was the right decision and considers that Bell’s revised application does not warrant a different outcome.  The Commission was correct in determining in Round 1 that “in the event of an approval, BCE’s level of market power would be so significant that the VI framework would be insufficient to effectively address disputes and facilitate program availability and distribution.”[3] This remains true in Round 2.

TELUS submits that experience over the past year and half has shown that the current safeguards are insufficient.  Some amendments are required to the VI Framework regardless of the outcome of this proceeding; but in the event that the Commission decides to approve Bell’s acquisition of Astral (or any part thereof), we believe significant additional safeguards must be imposed on all Bell services to prevent Bell’s use of its significant market power to act on incentives for anti-competitive behaviour.  In particular, there is a need to create a framework which more evenly shares the risk of making unreasonable demands and forcing dispute resolution.  More guidance must be provided as to what constitutes commercially unreasonable terms and conditions and how to determine fair market value.  Finally, in light of the significant market power over advertising availabilities, new safeguards will have to be enacted in this area as well.

[1]     The transcript is provided in our submission.

[2]     For example, Bell Media uses both CTV and CTV2 to broadcast the top-rated program American Idol with the 2‑hour competition show broadcast on CTV and the 1-hour results show broadcast on CTV2.

[3] CRTC Broadcasting Decision 2012-574 (http://www.crtc.gc.ca/eng/archive/2012/2012-574.htm) at paragraph 65.