BEFORE THE CANADIAN RADIO-TELEVISION AND TELECOMMUNICATIONS COMMISSION BROADCASTING NOTICE OF PUBLIC HEARING CRTC 2010-498, ITEM 2 APPLICATION BY SHAW COMMUNICATIONS INC TO TAKE OVER EFFECTIVE CONTROL OF CANWEST GLOBAL COMMUNICATIONS CORP. COMMENTS OF TELUS COMMUNICATIONS COMPANY 23 August 2010 Table of Contents Executive Summary - 2 - Introduction - 5 - Unprecedented Vertical Integration and Market Power - 8 - A true evaluation of Shaw’s market power - 11 - The Canwest acquisition is driven by vertical benefits, not efficiencies. - 14 - Possible Remedies to Counter Pitfalls of this Unprecedented Vertical Integration - 15 - Strict prohibition on exclusive content arrangements - 17 - Handling of complaints of undue preference - 20 - Suspension of VFS regime for vertically integrated broadcasters - 22 - Structural separation - 23 - Tangible Benefits that Fit this Transaction and the Existing Policy - 25 - Shaw has understated the value of the transaction - 26 - Shaw’s benefits package must total at least $200 million of new benefits - 27 - The proposed $23 million for conversion of transmitters is not a tangible benefit - 29 - Incrementality of obligations - 30 - Shaw has made no effort to benefit any third parties - 31 - Conclusion - 32 - Appendix 1: Nordicity Study on International Practices in Safeguarding Against Anti- Competitive Practices in Broadcasting Distribution - 35 - Executive Summary Regulatory approval of the application by Shaw Communications Inc. (Shaw) to effectively acquire all the broadcasting assets of Canwest Global Communications Corp. will make Shaw the largest vertically integrated media company in Canada. This has serious implications for the Canadian broadcasting system given the potential for self-dealing and anti-competitive behaviour which may negatively impact access and diversity. Given the unprecedented scope of vertical integration which would be created in the approval of this transaction, TELUS submits that the CRTC must adopt, as conditions of approval of this transaction, safeguards to limit any abuse of market power and anti-competitive behaviour by Shaw and its affiliates, particularly with respect to matters such as agreements with non-affiliated producers, programmers and broadcast distributors on linear and new distribution platforms. These safeguards must take the form of clear, unequivocal and enforceable rules. Moreover, TELUS submits that the Commission must proceed with caution as it approves this transaction which will significantly alter the landscape of the Canadian broadcasting industry. Accordingly, as further discussed in a parallel submission filed by TELUS today with respect to the renewal of Shaw’s cable licenses, TELUS submits that the Commission must retain its powers to make amendments to conditions of license and thus it should renew Shaw’s cable licenses for a two-year term only. This prudent approach would follow that taken in A group-based approach to the licensing of private television services in which the Commission indicated that it would renew for a one-year term only the broadcasting licenses of all television licensees controlled by a designated group in order “to allow the broadcasting industry to adapt to both the new group-based approach set out in this regulatory policy and the Commission’s determinations resulting from the additional proceedings With respect to tangible benefits, both Shaw’s assessment of the value of the transaction and Shaw’s proposal for a “pseudo” benefits package makes a mockery of the Commission’s policy which was established to ensure contributions to the broadcasting system as a tradeoff for the concentration that flows from such merger and acquisition activity. For all intents and purposes, Shaw’s application contains no tangible benefits package at all (as will be further explained below). While Shaw argues that the Commission should look at the so-called “intangible benefits” of this transaction, TELUS submits that this argument is severely flawed and that a full and proper tangible benefits package is warranted in this case to help offset the reduction in diversity that will result from the approval of this transaction. Without such tangible benefits, there would seem to be little value and considerable risk in approving this transaction. Canwest’s recourse to creditor protection has skewed the reality of a very lucrative deal. The problems in which Canwest found itself were mostly the result of its crippling debt load as we entered the worst recession since the 1930s. The demise of the former ownership group had nothing to do with the profitability of Canwest itself, especially as it started to reap the benefits and synergies resulting from the acquisition of the Alliance Atlantis specialty services. Rather, it had everything to do with bad timing, high leveraging of assets on the eve of a global economic crisis and, among other things, the coincident collapse of advertising revenues. Shaw saw a great deal in buying Canwest and made a strategic investment in doing so. Shaw cannot be begrudged for making a possibly smart business decision (buying highly profitable but undervalued assets at a distressed price) but it should not be given special exemption from a long-standing and cornerstone Commission policy that supports the greater broadcasting system for having done so. This acquisition of very profitable broadcast properties, which we estimate at over a $2 billion value, must entail the payment of a full and proper benefits package, that amounts to at least $200 million, and exception must not be made based on the proposition that the so-called rescue of Canwest is benefit enough. TELUS’ recommendations to the Commission in approving this transaction can be summarized as follows: • Establish safeguards by way of conditions of license which should include at a minimum: • The strict prohibition on content exclusives on all platforms • A reverse onus for handling complaints of undue preference and interim relief such as providing access to content pending resolution of a complaint. Also establishment of a policy of taking into consideration the cumulative effect of multiple instances of preferences granted to an affiliate, undue or not. • Filing of all existing affiliation agreements between Canwest and Shaw in order to set a baseline for the purposes of assessing undue preference and a requirement to file all future affiliation agreements between Shaw and its affiliated programming undertakings. • Enable either party to elect to use commercial arbitration in the event of difficult negotiations to ensure access to content by competitors without undue delay. • A moratorium on any value-for-signal regime for integrated broadcasters for two years after which time rates for Canwest Global would be set through commercial arbitration at rates which do not exceed rates paid carriage of CTV for same terms and conditions. Moreover, in order to guard against self-dealing. payment would be made by all distributors, including Shaw, into an independent production fund which would manage the money on Canwest’s behalf. • Full structural separation between carrier and programming operations to prevent any sharing of board members or employees between any of the Shaw affiliated companies. • The Commission should renew Shaw’s cable licenses for a two-year term only in order to retain the power to make changes to conditions of license in the short term as needed due to the quickly changing environment and the unknown potential consequences to the broadcasting system of this transaction. • The Commission should require that Shaw consent to a full and appropriate tangible benefits package: • It must be based on the full value of the transaction which is valued at over $2 billion; • It must not include as part of the 10% calculation any benefits which were previously obligated under the Canwest/Alliance Atlantis transaction but Shaw must be obligated to perform those prior obligations in addition to the new benefits • At least 75% of the benefits must be dedicated to third party initiatives such as independent production. • The Commission should impose strict obligations on Shaw with regard to the auditing and reporting of all planned expenditures. Introduction • Regulatory approval of the application by Shaw Communications Inc. (Shaw) to effectively acquire all the broadcasting assets of Canwest Global Communications Corp. (Canwest) will make Shaw the largest vertically integrated media company in Canada. This has serious implications for the Canadian broadcasting system given the potential for self-dealing and anti- competitive behaviour which may negatively impact competition in both the programming and distribution markets, and thereby diminish access and diversity in the broadcasting system. TELUS commends the CRTC for noting such concerns in its Notice of Consultation and for requesting comments on the potential for abuse of market power resulting from this takeover. • Given the unprecedented scope of vertical integration which would be created in the approval of this transaction, TELUS submits that the CRTC must adopt, as conditions of approval of this transaction, safeguards to limit any abuse of market power and anti-competitive behaviour by Shaw and its affiliates, particularly with respect to matters such as agreements with non- affiliated producers, programmers and broadcast distributors on linear and new distribution platforms. These safeguards must take the form of clear, unequivocal and enforceable rules. • Moreover, TELUS submits