Shaw Response to BNC 2010-488 (DTH Policy Review)

September 8, 2010 Mr. Robert A. Morin Secretary General CRTC Ottawa, Ontario K1A 0N2 Filed electronically via the CRTC Intervention/Comments Form Dear Mr. Morin: Re: Broadcasting Notice of Consultation CRTC 2010-488 – Review of the direct-to-home satellite distribution policy (BNC 2010-488) Introduction 1. Star Choice Television Network Incorporated, the licensee of the direct-to-home satellite (DTH) distribution undertaking Shaw Direct, provides the following response to BNC 2010-488. As one of the two operating licensed DTH undertakings, Shaw Direct has a critical interest in the issues to be considered in this proceeding and wishes to appear at the public hearing. 2. In this submission, Shaw Direct: • reviews the fundamental principles relating to competitive considerations, regulatory symmetry, extension of service, consumer demand, capital requirements and economic circumstances, and capacity constraints that must be respected in establishing the DTH regulatory policy • reviews issues relating to the carriage of conventional over-the-air (OTA) television stations by DTH broadcasting distribution undertakings (BDUs) and submits that: o territorial exclusivity and integrity of the local signal are not factors that should be taken into account, Shaw Communications Inc. 40 Elgin Street, Suite 1400 Ottawa, Ontario K1P 5K6 Tel: 613-688-6751 Fax: 613-688-6799 o the DTH regulatory policy should not contemplate DTH distribution of local signals on a “local into local” basis, or the requirement to distribute any more Canadian OTA television stations as mandatory signals, and o the DTH regulatory policy should confirm that DTH BDUs are not required to distribute the HD signal, if any, of an OTA station that the DTH BDUs are required to distribute and should allow conversion to SD where such a station transmits only in HD, and • reconfirms that there are no issues relating to the performance of simultaneous substitution by Shaw Direct. 3. Shaw Direct also reserves the right to respond to any additional issues that may be raised in the comments of other interested parties or during the course of the hearing. Back to Basics: The Principles and Achievements of DTH Regulation and Policy 4. In Directions to the CRTC (Direct-to-Home (DTH) Satellite Distribution Undertakings) Order 1 and Directions to the CRTC (Direct-to-Home (DTH) Pay-Per-View Television Programming Undertakings) Order 2 (together, the Directions), the Governor-in-Council set out the fundamental principles by which the Commission was to support and regulate the provision of Canadian DTH service, including: • promotion of dynamic competition between DTH services themselves, as well as between DTH and terrestrial BDUs, • licensing of DTH BDUs subject to “appropriate” requirements, • introduction of “substantially the same” carriage rules for DTH and other BDUs, and • fulfillment by DTH licensees of “equitable obligations” and “maximum contributions” to Canadian programming. 5. The regulatory framework that has governed DTH from its inception has reflected these principles very effectively and has enabled DTH to make tremendous contributions to the broadcasting system. 6. One of DTH’s most important achievements has been its extension of service, particularly to Canadians in rural and remote areas. Before Canadian DTH service was available, television viewers in these areas were frequently limited to receiving a few over-the-air signals of varying quality and, in some cases, service from small cable systems. Accordingly, the scope of viewing choice available to Canadians in such areas was usually far more limited than that available to people living in large urban centres. Canadian DTH service, with its national footprint, made hundreds of previously unavailable channels available to these households in digital. No longer did television service in rural and remote areas lag that of urban areas. 1 SOR/95-319, July 6, 1995, 1995 Canada Gazette Part II , p. 1924 2 SOR/95-320, July 6, 1995, 1995 Canada Gazette Part II , p. 1928 2 7. Another critically important achievement of DTH has been the addition of new or repatriated subscribers to the broadcasting system and the prevention of attrition to non- Canadian satellite services. As noted in Broadcasting Public Notice CRTC 2004-19, Introductory statement to Broadcasting Decisions CRTC 2004-129 and 2004-130, which renew the licences of the ExpressVu and Star Choice direct-to-home satellite distribution undertakings (BPN 2004-19), one-half of the two million DTH subscribers in 2004 were new subscribers to Canadian BDUs. As such, DTH has been fundamentally important to keeping the broadcasting system strong and fulfilling the policy objectives of providing Canadians with varied and comprehensive programming choice and delivering it to them, wherever they live in Canada, using the most efficient technologies available at reasonable costs. 8. DTH’s role in the extension of service has also directly benefitted Canadian pay and specialty programming services (particularly digital services), by creating a digital network and a strong competitive incentive for terrestrial BDUs to digitize, as well as a significant new market and revenues for both analog and digital discretionary services. These significant achievements must continue to be supported and promoted by DTH regulatory policy. 9. In addition to creating dynamic competition as between themselves and with terrestrial BDUs, Canadian DTH services compete aggressively against illegal satellite systems and, increasingly, unregulated sources of programming. The Commission must therefore be careful to refrain from introducing regulatory or policy changes with the objective of increasing regulatory symmetry but with the effect of weakening the competitive appeal of Canadian DTH as compared to that of unregulated or illegal services. Shaw respectfully submits that DTH policy and regulation should ensure that the DTH operators continue to have the flexibility to offer service in a manner that allows them to remain relevant to customers in the face of unregulated competitive alternatives. 10. In today’s digital environment, satisfying consumer demand for choice and flexibility is the key to remaining competitive. The CRTC’s established approach is to require general regulatory similarity, while also affording flexibility. This flexibility has helped DTH to remain competitive even though its technical features have challenged its ability to offer important consumer services such as video-on-demand, all local stations, digital phone and two-way internet using the satellite network. Regulatory Parity Does Not Mean or Require Identical Regulation 11. It is clear from the Directions that precise symmetry between the regulation of DTH BDUs and other BDUs was neither required by the Governor-in-Council nor implemented by the Commission. Indeed, precise symmetry would undermine the dynamic competition between DTH and terrestrial BDUs, and DTH’s broader ability to contribute to the realization of the objectives of the Broadcasting Act . 12. DTH has unique technical features that require unique regulatory approaches. The Commission has implemented a regulatory approach to terrestrial and DTH BDUs that is generally similar, but features certain specific regulations and policies for DTH that respond to the capacity limitations and national reach of DTH systems, including: 3 • unique carriage obligations with respect to local broadcasters, • the requirement that 5% of revenue be contributed to Canadian programming, • restriction on the right of DTH to operate and direct part of its Canadian programming contribution to a community channel, and • unique carriage obligations with respect to the national distribution of English and French-language PPV service. 13. DTH is extremely capital intensive and fiscally challenging. Shaw Direct has invested more than $1.5 billion in its DTH business since 1995 and will be investing another $300 million in the new Anik G1 satellite. It will be another 10 years before Shaw Direct will have recovered this investment. As noted in its Capacity Report dated July 2, 2010, Bell TV has invested over $2B in its network and is still not profitable. 14. In addition to the huge investments required to finance new DTH facilities, such facilities have a long planning and capital investment cycle that is incompatible with an unstable regulatory framework in which rules are modified on an ongoing basis. Most satellites take at least 3 years to build. In addition, substantial time is required to obtain orbital authorizations, and negotiate the right payload on the right satellite, which can involve multiple parties. In conjunction with identifying the viability of particular space segment, a full and lengthy assessment of ground equipment and customer access considerations must also be made. 15. In the case of Anik G1, following a period of evaluating whether the capacity could be efficiently utilized, the total time elapsed between Shaw Direct’s first Letter of Intent to proceed with Telesat to the provision of the bandwidth will be at least four years. Changes in regulatory policy cannot be accommodated by satellite technology unless substantial lead times are also provided. Indeed, some changes – such as local-into-local and universal local carriage – cannot be accommodated at all given the economic and competitive realities of DTH. 16. As outlined in detail in the Capacity Reports filed by Shaw Direct and Bell TV in this proceeding, DTH has capacity limitations that constrain

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