CRTC approves Shaw-Canwest transaction, launches review of vertical integration

The CRTC approved on Friday Shaw Communications Inc.'s acquisition of the broadcasting assets of Canwest Global Communications Corp.—but at the same time announced a new proceeding to study vertical integration in the Canadian communications industry. “As a regulator, it is only prudent that we study the implications to ensure we have the right tools to deal with competitive concerns as they arise,” CRTC chairman Konrad von Finckenstein said in a release. “Transactions will continue to be considered under the existing rules until we have completed our review.” That means Bell Canada Enterprises Inc.’s agreement to wholly purchase CTVglobemedia Inc. won’t be affected by any new regulatory changes arising from the CRTC review. The proceeding will review the commission’s safeguards to prevent anti-competitive behaviour. A public hearing has been scheduled for May 9, 2011 in Gatineau. In an interview with BNN following the decision Friday, von Finckenstein said the review will move along quickly. “Six months from now we’re holding the hearing. We will issue a decision 31 days after, so we’re not talking about dragging things on. We’re moving this relatively at lightning speed in terms of regulatory decisions,” he said. The CRTC said it wants to ensure that competitors have a fair opportunity to negotiate for programming in a world where most of the distributors are also the content owners. The commission noted the broadcasting industry has experienced several transactions over the past decade where cable and satellite distributors have acquired television properties and production companies, including Quebecor Media Inc.’s purchase of television network TVA in 2001 and Rogers Media Inc.’s purchase of five Citytv stations in 2007, plus the Shaw transaction. BCE Inc. also announced in September an agreement to acquire CTV. Von Finckenstein said the proceeding will examine commission regulatory tools to deal with companies that do not respect their conditions of licence. “That’s one of the reasons why we’re having the hearing on vertical integration,” he said. “Assuming the case people do exercise program exclusivity, what is the likelihood of that and where will it lead?” The CRTC approval will allow Shaw to acquire Canwest’s broadcasting assets, including 11 local Global television stations and 21 specialty channels. As part of the transaction, the commission will require Shaw to make the rights to its television programming available to competitors, including Telus Communications Co., for broadcast on mobile devices and the Internet. Telus said in a release Friday that it is happy with the decision. “Telus is pleased that the CRTC has chosen to protect consumers against content exclusives by vertically integrated carriers in the case of Shaw,” Telus wrote. “Broadcasting is not an open market and as long as the supply of content is restricted and protected to ensure adequate contribution towards the achievement of cultural objectives, open access for all is critical to maximize cultural benefits and the benefits of competition.” Telus--which does not own broadcasting assets--also said it supports the new proceeding on industry consolidation. “We are equally pleased the CRTC has initiated a process to look at applying these rules more generally to others and ensure other consumer and competitive safeguards are in place to prevent abuse of market power by vertically integrated carriers,” the release said. The CRTC said it approves Shaw’s proposal to spend $180.1 million over the next seven years as part of its tangible benefits package. Under CRTC regulations, companies acquiring broadcasting assets must contribute benefits to the Canadian broadcasting system. The $180.1 million in benefits will be spent on converting 67 analog transmitters to digital in small markets; providing and installing satellite receivers and dishes at no charge to subscribers who will lose access to over-the-air signals after the transition to digital television broadcasting next year; producing new two-hour morning newscasts in six markets; purchasing more content from independent producers; and investing in new media content. As part of the $2-billion acquisition, Shaw had previously submitted a $203-million tangible benefits package, including $95 in funds Canwest had yet to pay as part of its purchase of Alliance Atlantis Communications in 2007. But over the course of the CRTC’s proceeding on the transaction, Shaw increased its benefits package by $72 million in response to criticism from cultural groups like the Writers Guild of Canada (WGC) and the Alliance of Canadian Cinema, Television and Radio Artists (ACTRA). The revised benefits package includes $180 million in new benefits plus the $95 million carried forward from the Alliance Atlantis purchase. The WGC issued a release Friday saying that it is satisfied with a new benefits package that will enable the creation of “new high-quality Canadian entertainment.” The commission normally requires that benefits packages amount to about 10 per cent of the transaction, ACTRA issued a release Friday saying the benefits package falls short. The benefits should have totalled $205 million for a full 10 per cent of the transaction, ACTRA said. Norm Bolen, president and CEO of the Canadian Media Production Association (CMPA), said he is pleased the decision calls on Shaw to negotiate terms of trade with independent producers before the commission's licence renewal hearings for broadcasting groups next year. During the proceeding, the CMPA argued that negotiating with a vertically and horizontally integrated company is a disadvantage because there are “fewer doors to knock on” and broadcasters are distributing content for new platforms without additional compensation for those rights. Bolen said new terms of trade will put a time limit on how long broadcasters can licence a production and will return unused digital rights to producers. In a conference call with analysts Friday, Shaw CEO and vice-chair Jim Shaw—who is being replaced by his younger brother Bradley Shaw—said he expects the transaction to close before the end of the month. Shaw also announced its fourth quarter results Friday. Consolidated service revenues were up eight per cent in the quarter to $939 million, bringing the yearly total to $3.72 billion, an increase of 10 per cent. But quarterly earnings dropped $2 million to $122 million. The company added 60,000 digital television subscribers in the quarter, 21,000 Internet subscriptions and 51,000 digital home-phone accounts. Shaw added that next year it will invest approximately $200 million in its wireless network build out. The company previously spent $100 million in the last two quarters on the core network. Shaw has yet to announce whether it will launch a 3.5G or LTE network. kfournier@thewirereport.ca

CRTC approves Shaw-Canwest transaction, launches review of vertical integration

News | 10/22/2010 10:13 pm EDT

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