Rogers application for rate deregulation seen as test case for industry and CRTC

An application by Rogers Cable Inc to deregulate two small cable systems in southern Ontario is as much a test case for the cable industry as it is for the CRTC’s broadcast distribution rules – PN 2001-53. In a move that had been expected by the commission long before now, Rogers became the first company in Canada to apply under a 1998 regulation that allows a cable system to apply for basic rate deregulation if it can prove a 5 per cent drop in its subscriber base. Rogers filed reports with the CRTC showing it had lost 16.3 per cent of its customers in Woodstock, and 17 per cent of its customers in St. Thomas between Sept. 5, 1997 (the same month ExpressVu hit the market) and Oct. 18, 2000. When new customers are included, net customer loss in the two cities was 7.26 per cent and 8.33 per cent, according to Pamela Dinsmore, Rogers’ VP of regulatory affairs. Frank Eberdt, Rogers’ VP of Southwest Ontario, says the applications are partly about gaining better flexibility, and partly a test case to see how the commission handles such applications. "We can see that over time, there will be similar situations in other markets and we thought it was important to understand how the CRTC would deal with this application as a procedural matter," he says. "It is the first such application that has been filed by a Canadian cable company and it did result in a public notice.…What we want to do is establish what the steps are." On the business side, the cable operator equates basic deregulation with "pricing flexibility". The company notes that satellite TV operators are free to set their own rates for basic and premium services, without seeking regulatory approval. Eberdt says under the current rules, cablecos are allowed to raise their premium tier rates, but as for basic, it can only go down in price. "But if we wanted to match our competitor in reverse – to raise our basic service and lower our tiers — we can’t, but our competitor can," he explains. Eberdt says the company has no immediate plans to raise its basic rates. "But thinking strategically, there is no reason why we should not have the right to do that since we do comply with CRTC rules," he adds. Deregulation could also make marketing easier, by allowing cablecos to standardize rates across markets and launch broader advertising campaigns, he notes. "For example, if we wanted to have uniform pricing in the future in the greater London area, where we have about four or five separate licences there, we could advertise a common price point in that marketplace," says Eberdt. DTH companies already have national advertising campaigns. Not necessarily advantageous Janet Yale, president and CEO of the Canadian Cable Television Association (CCTA), says one reason no cable operator has applied before now for rate deregulation is that it’s not necessarily what the industry needs to improve its competitive position. What the process will demonstrate, however, is that competition has been having its desired effect from a public policy point of view. "Because we kept getting asked by the commission, ‘If you actually had this kind of market share numbers, how come no one is applying’," she says. "It’s because it’s really not the kind of flexibility you want to respond to competition. What you want is flexibility in terms of carriage." She adds that several small cable operators lost 5 per cent of subscribers long before now, but that they often lack the resources to apply for deregulation, particularly since the benefits of deregulation are unclear. "I don’t think there will be a flood of applications from others. For many of the smaller systems, it doesn’t get them what they need. They are really suffering from the impact (of competition). They are focused on marketplace survival.…It’s not a regulatory issue for them; it’s a marketplace issue," states Yale. Other cablecos are watching this proceeding with interest. Pat Kiely, director of business operations and development of Hamilton-based Mountain Cablevision Ltd, notes that smaller systems such as his own have lost the most ground to DTH. He adds though that any changes in basic package pricing would have to be carefully considered. "How much change is the public prepared to accept in the way things are offered to them? Anytime there is change, you create tremendous discomfort, no matter how you do it. I think there are a number of issues we have to think through before we say this is the panacea." But he also points out that cablecos have had no ability over the years to address inflation or other costs related to the delivery of a heavily regulated basic service. Under the 1998 regulation, cablecos can apply for the right to raise their basic cable rates without regulatory approval provided they have lost 5 per cent or more of their customers based on a set number of homes at two different times (newly acquired customers are not accounted for in the equation), and there is competition in the market. The commission ruled that the latter requirement had been fulfilled on Aug. 31, 1997 as the services of other broadcasting distributors by then were available to 30 per cent or more subscribers across Canada. Discretionary tiers on cable are not regulated. Currently, the commission only allows increases to basic tier rates on cable if a cableco’s profitability is below set thresholds, if a rate increase is approved by the CRTC for a specialty channel carried on basic, or if a specialty service has been added to the basic tier.

Rogers application for rate deregulation seen as test case for industry and CRTC

Broadcast | May 24, 2001

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