Overhaul regulatory regime to ensure cablecos have funds to innovate: CCTA

An overly complex regulatory environment and restrictions on its ability to raise foreign capital leave the Canadian cable industry seriously undervalued compared to its U.S. counterpart, says the Canadian Cable Television Association (CCTA). As a result, the cable industry is impaired in its ability to offer next-generation services and programming that meet consumer demands, according to the lobby group. In a submission this month to Industry Canada’s innovation agenda process, the association notes that Canadian cable companies have average customer valuations that are $1,700 lower than U.S. cablecos (see chart). As a result, the CCTA says that cablecos on this side of the border are at a disadvantage to their U.S. counterparts, and that lower valuations limit the ability of Canadian operators to leverage capital investments. The CCTA points out that the ability of Canadian cablecos to raise funds to invest in innovative new services is directly linked to the valuations of their existing assets. One of the ways that the investment community evaluates cable assets is based on the market value of cable system transactions (e.g., mergers and acquisitions), measured in dollars per subscriber. "We believe that differences in valuation arise from a combination of effects particularly the capital restriction … and a complex regulatory system that limits the availability of certain foreign brands in order to promote Canadian cultural goals," the CCTA states. "That has a dampening effect on demand. We submit it is possible to continue to pursue cultural goals while lessening the degree of regulatory constraint or micromanage-ment." The association states that a weakened economy and depressed cable stocks have already led Cogeco Cable Inc. to write off its $30-million investment in local telephony. Cogeco estimated the cost per subscriber would range from $500 to $600 to implement residential local service based on an IP telephony rollout. The CCTA also notes that added channel capacity resulting from heavy investment in plant upgrades and digital technology are being restricted by regulatory obligations. It points out that new carriage obligations for minority-language services, the Cable Public Affairs Channel, digital Category 1 specialty services, and high-definition television (HDTV) are using up capacity meant to respond to competition from direct-to-home satellite TV distributors and to introduce more advanced and innovative services. Cable companies argue that they need greater assurance of a return on capital investment through such things as higher subscriber revenues if they are to invest in broadband, digital cable, HDTV, interactive television, advanced services such as video-on-demand, and telephony. The answer, according to the CCTA, is a complete overhaul of the Broadcasting Act and Broadcast Distribution Regulations, as well as a lifting of foreign ownership restrictions on broadcast distributors. In the government’s innovation agenda process, the association continues its call for a "more flexible and less interventionist" regulatory regime that will enable cable operators to better respond to consumer demand. It notes that the regulatory framework was changed when the telephony industry opened up, and that incumbent cablecos would benefit from the same treatment. Shares of Shaw Communications Inc. and Rogers Communications Inc. fell to their lowest levels in four years on September 25 after a credit rating agency considered downgrading their credit ratings to junk status. Moody’s Investors Service placed Rogers Cable under review for a possible downgrade on concerns that it would not be able to generate enough cash flow in the next few years to deal with its $2.3-billion debt. Shaw could also see its senior unsecured rating cut from Baa3 to non-investment grade.

Overhaul regulatory regime to ensure cablecos have funds to innovate: CCTA

Broadcast | September 26, 2002

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