Wholesale regulation, dual-status channels largely gone in CRTC digital cable plan

The CRTC has taken just over a year to consult with the public and come up with findings on how cable firms can best migrate their analog services to digital, and Canadian cablecos seem mostly pleased with the end result. Last month’s Digital Migration Framework (Public Notice 2006-23) lays out differing approaches for large and small cable providers on such issues as: programmer consent for how digital signals are offered; interim mirroring of basic cable packages on digital; linkage requirements and à la carte offerings; whether or not the dual-status and modified dual-status designations should persist in a digital environment; and, last but not least, whether or not the practice of regulating wholesale rates and mark-ups should continue. It’s the culmination of a call-for-proposals undertaking launched in January 2005 with Public Notice 2005-1, a framework that at the time was criticized as vague and lacking in direction (CCR, Jan. 14/05). However, some larger cablecos are already ahead of the CRTC’s curve: Rogers has been forging towards a complete digital lineup for some time now, says David Purdy, VP and GM of television at Rogers Cable. The commission proposed a timeline for conversion to an all-digital cable environment and shutting off the analog signal – when 85% of a cableco’s subscription base has digital set-top boxes and ability to receive a digital signal, or Jan. 1, 2013, whichever comes first. Purdy says there’s no ambiguity as to which threshold will come first in Rogers’ case. "We will be in a position to be north of 85% digital as quickly as possible," he says. "We’re converting somewhere between 200,000 and 240,000 subscribers a year from analog to digital based on…the current run rate." Driving that mass migration to digital are such technological advancements as high-definition TV, video-on-demand, and personal video recorders, he says. During the transition period from analog to digital, the commission also determined that cable providers should mirror their basic cable packages on both analog and digital services, again until 85% of subscribers have converted to digital or the beginning of 2013. Again, Purdy says Rogers has anticipated the need to replicate basic cable on digital and has already been doing so. "We were actually I think probably the first company in North America to go with a simultaneous analog and digital line-up," he says. A key aspect of the commission’s determination concerns wholesale rates: after years of dictating how much specialty channel providers can charge cable BDUs for wholesale access to their signal, the CRTC has decided that except for the 9(1)(h) class of mandatory channels, the market will now decide how much specialty channel programmers can charge for their offerings, as well as the mark-up on those specialty channel rates that cablecos can pass along to consumers. However, while the CRTC’s move is a formal acknowledgment of market pricing power, many cablecos – including Rogers – have already applied for and been granted exemption from regulation due to increased competition from direct-to-home and IP television distribution rivals. "The impact on us at this point will be minimal, because our basic and tier pricing packages are pretty well-established," he says. In an attempt to address the thorny issue of programmer consent around moving specialty channels to digital, Rogers Cable and seven programmers also submitted a memorandum of understanding, which the commission said was a commendable effort to address the problems and a sound basis for a broad policy. However, other cablecos disagreed, saying it was written expressly with Rogers in mind and would not translate well to their operations. "Now we have…the actual rules from the commission itself…we would look to the spirit of the MOU but more importantly the rules and regulations as released in the decision," Purdy says. "I think we found the decision to be in the interest of the customer, and it’s our intent to move forward with it." One of the first constituencies the CRTC concerned itself with when it began to draft an analog-to-digital migration framework was Canada’s smaller cable providers. In Public Notice 2001-130, the commission laid out a framework expressly for cable providers with fewer than 20,000 subscribers to move their offerings onto digital distribution platforms. Some key exemptions therein – namely the ability for small cablecos to move existing analog specialty services to digital without consulting the programmer, and the ability to cut off analog signal once commission approval to do so is obtained – were kept intact in PN 2006-23. "People like Rogers and Shaw have the capacity to duplicate their analog lineups in digital," says Chris Edwards, legal counsel, Canadian Cable Systems Alliance. "But the smaller systems…need to be able to migrate directly – cut off the analog, and move into digital. And by and large, that’s what this framework does for the small systems." One thing left unresolved in the framework, however, is how to get US services to consent to digital distribution of their signals in Canada. Some American networks have refused to provide their digital signals to Canadian SRDUs in the past, and the CCSA had asked the commission to order US programmers to do so as part of their inclusion on the eligible foreign satellite services list. "In our commercial negotiations, what we tend to see is just a complete wall thrown up, saying ‘There will be no digital, go away,’" Edwards says. "I would say that’s been changing in negotiations recently, it’s starting to happen, but there’s still some of it." However, as a Canadian regulator the CRTC has very little sway over these services, he adds. Edwards worries that cable distributors will be slowed in their course to an all-digital environment by the possibility that US networks will remain anchored in analog, with no deal in place to migrate them. "Nobody’s actually going to move anything if they can’t bring along the US networks with them," he says. New foreign services are being approved for digital transmission only, and the regulator now allows small cablecos to purchase their US 4+1 signals from non-Canadian SRDUs if necessary and if the signals were approved for carriage in Canada. Satellite BDU Bell ExpressVu, meanwhile, found common cause with its cable brethren around the issue of the 1:1 and 5:1 Canadian-to-non-Canadian specialty channel linkage rules. ExpressVu and others had been pressing the commission to change the rigid ratios to broader language mandating a "predominance" rather than a complex set of linkage rules, says Paul Armstrong, the satellite distributor’s director of regulatory and government affairs. "It was just meant to say that you had to have more Canadian specialty services than US. We felt this would give both competing BDUs the opportunity to be more creative in their packaging, and it would give consumers better opportunity for more choice," says Armstrong. "And, given the large number and strong appeal of established Canadian specialty services and relatively few non-Canadian services, it would be easy to achieve." However, the CRTC disagreed, saying, "The commission considers that the 1:1 and 1:5 rules should apply in a digital environment. "It’s unfortunate, but it’s not the first time that parties have asked for predominance and it won’t be the last," says Armstrong. Rogers’ Purdy, meanwhile, says that while it’s likely more consumers will want to order specialty and pay channels à la carte – a level of customization that’s finally possible with digital – he remains committed to the Canadian production industry, which fears such customization will allow consumers to bypass the linkage rules. "It’s not my intention to erode the penetration or the value of those tiers…just the opposite – I’m looking to try and add incremental value to those tiers, and have customers take larger packages of programming, not smaller," he says.

Wholesale regulation, dual-status channels largely gone in CRTC digital cable plan

News | 03/13/2006 5:00 am EST

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