Bell’s competitors question Competition Bureau approval of Astral deal

Cogeco Cable Inc. and Quebecor Media Inc. criticized the Competition Bureau's closed-door approval of BCE Inc.'s $3.38-billion acquisition of Astral Media Inc. in advance of a public hearing on the acquisition to be held by Canada's broadcast regulator. Quebecor chief executive Pierre Karl Péladeau said in a letter to the Competition Bureau on March 20 that Bell sought closed-door negotiations surrounding its proposed acquisition of Astral so that other companies and interested parties could not be heard out. “It is unbelievable that the Bureau agreed to comply with this strategy without allowing us to assert, in a specific way, the considerable competitive issues raised by that approval,” Péladeau said in the letter. The Competition Bureau announced on March 4 that it had approved BCE's purchase of Astral under a condition to sell off 12 pay and specialty channels. The announcement came two days before broadcast regulator the CRTC publicly released Bell's proposal to purchase Astral and announced a public hearing on the deal starting May 6. Yves Mayrand, vice-president of corporate affairs at Cogeco, told the Competition Bureau in a letter April 3 that it had urged the bureau in earlier correspondence to not make a decision on the acquisition before affected stakeholders, including Cogeco, had an opportunity to comment on the bureau's proposed remedies. “In fact, we were verbally told by Bureau staff that we would be given this opportunity,” Mayrand wrote, noting that the deal involves Corus Entertainment Inc. purchasing the specialty channels from BCE. “ou have in essence concluded that Canada's top communications company, Bell, can absorb Canada's largest remaining independent broadcaster, Astral, provided that Canada's second largest vertically integrated broadcaster, Corus, a company affiliated with Canada's largest broadcasting distribution group, Shaw , acquires the majority of the broadcasting properties to be divested,” Mayrand said. Péladeau said the Competition Bureau should have better consulted with industry on the planned divestitures from Bell. “The fact that the Bureau proceeded in isolation was a major flaw in its investigation, a flaw which led to a consent disconnected from reality and completely inadequate,” Quebecor's six-page letter said. Cogeco said that, as a result of the Bell-Astral merger, the combined, national revenue share for the largest four companies in Canada's broadcast market would rise from 70.7 per cent to 79.1 per cent for the overall TV market and from 69.2 per cent to 83.4 per cent in the market's pay and specialty channel segment. Quebecor and Cogeco, competitors with Bell, filed their submissions to the CRTC on Friday for its consultation on the Bell-Astral transaction. Their letters to the Competition Bureau were attached as appendixes in their CRTC submissions. Those companies, along with BCE competitors Rogers Communications Inc. and Telus Corp., said in their regulatory filings that BCE's specialty channel divestitures are not enough and that the deal should be blocked outright. Telus and Rogers said any approval by the CRTC should warrant additional regulatory safeguards on Bell's market power. Bell's competitors said they are concerned that its hold on key sports and film content, such as TSN and Astral's The Movie Network channel (which includes HBO programming), would allow the company to abuse its market position and prevent its rival broadcasters and distributors from accessing content. Last fall, the CRTC denied Bell's first proposal to purchase Astral, citing concerns about competition, market concentration in the broadcast sector, and a deal that did not appear to be in the public interest. Bell and Astral then filed a second, reworked application. Industry sources told The Wire Report Monday that the Competition Bureau's agreement with Bell will have consequences for how the CRTC approaches the acquisition. “It's been approved. It was a very smart move by the Competition Bureau,” said one industry person who has knowledge of the process and who asked to remain anonymous. The person said the CRTC, when it rejected the deal, did not outline what needed to be done for its approval, and the Competition Bureau saw an opportunity to define that in a deal with Bell. The industry person, who has no stake for or against the deal, said that, given the Competition Bureau's approval, the CRTC's approach to the acquisition will be to “fiddle around” with the benefits package that Bell must pay to support the Canadian broadcasting system. “They can't come back and say it's anti-competitive,” the person said of the CRTC. Other industry sources interviewed on background Monday said the CRTC can continue to look at competition issues affecting carriage and distribution agreements for TV content. They said the commission could still deny the acquisition and that, if so, it would not be the first time the commission and the Competition Bureau disagreed. In March, Bell and Astral released their proposed Canadian broadcasting benefits package of $174.64 million, which according to CRTC regulations companies must pay when they acquire broadcasting assets. Cogeco attached an analysis to its submission that said BCE, if it acquired Astral, would grow its annual revenues by about $100 million through “triple-play” subscribers to Internet, TV, and mobile or landline phone services. Quebecor, in its fililng, requested that the CRTC impose a condition of licence on Bell that prohibits it from acquiring a French-language television network in the future, namely Remstar Corp.'s V. The company also said that, if the Bell-Astral deal is approved, the CRTC should encourage more competition through measures like eliminating genre protection for specialty channels. Rogers said in its CRTC filing that, if the transaction is cleared, Bell should be required to divest all of Astral's English-language specialty channels, including The Movie Network, TMN Encore and the Viewer’s Choice. Rogers said distributors cannot compete with Bell's TV and mobile TV services without access to the company's specialty channel content “on reasonable commercial terms,” and that Bell is offering its programming to competitors “at prices that are considerably higher than market rates.” That presents a win-win situation for BCE, Rogers said, because if a competitor accepts the offer, Bell receives a high rate, and if the offer is rejected, the competitor doesn't get the content. Rogers also proposed a regulatory safeguard, only applicable to BCE, that would allow a distributor that carries a BCE channel to automatically have the video-on-demand, online and mobile rights to that channel's programing with or without a commercial agreement spelling out those rights. Telus also called for more regulatory safeguards if the deal is approved, and said it is concerned about the competition tests applied by the Competition Bureau. Telus said in its CRTC filing that the bureau's agreement with BCE should be given “little or no weight” by the commission. In an emailed statement Monday, Jacqueline Michelis, a spokeswoman for BCE, said the company looks forward to the CRTC hearing and discussing how the acquisition will improve media choice, competition and create new Canadian content. “ablecos like Cogeco are basically demanding the regulator protect their profit margins—which at about 50% are actually already the highest in the North American cable industry,” Michelis said. In an email response to questions Monday, Phil Norris, a spokesman for the Competition Bureau, said the bureau spent just under a year reviewing the proposed Bell-Astral transaction, conducting a “thorough and detailed analysis” of it. The Bell-Astral divestitures and consent agreement preserve competition in Canada's English and French television markets, he said, and the bureau has the power to take action if it is aware of potentially anti-competitive behaviour. “he Bureau met with dozens of stakeholders, including competitors and market participants multiple times throughout the stages of our review, to seek views on the proposed transaction. Those views were carefully considered and taken into account in the Bureau's decision in this matter,” Norris said. —With reporting by Danika Grenier at dgrenier@thewirereport.ca and reporting and editing by Simon Doyle at sdoyle@thewirereport.ca

Bell’s competitors question Competition Bureau approval of Astral deal

Broadcast | April 8, 2013

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