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

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:

• 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 its ability to offer ever-increasing amounts of services – particularly in high definition. These limitations relate not just to the technical capacity of transponders but also to the limited number of frequencies that are available for satellite transponders and the cost of modifying or rolling out new ground equipment capable of utilizing the new capacity.

17. DTH is fundamentally a national wireless service offering with limited bandwidth. The technology’s natural efficiencies are maximized in the distribution of signals over a large area in a “one-to-many” broadcasting model. Unlike terrestrial systems, efficiencies are severely degraded when dealing with delivery of signals of interest to more localized areas. Choices must be made in allocating limited satellite transponders to the ever- increasing amounts of available programming, both local and national. The necessity for such choices, their impacts on costs, and the associated importance of consumer demand must all be recognized by DTH regulatory policy. The failure to make such considerations in favour of a simplistic adoption of precise regulatory symmetry will

undermine the tremendous benefits of DTH competition achieved through the existing policy pursuant to the Governor-in-Council’s Directions.

Carriage of Conventional Television Stations

18. Recent regulatory proceedings have considered two contradictory requirements relating to the carriage of conventional television stations by DTH:

• First, concerns that the distribution of signals in distant markets interferes with signal integrity of local broadcasters in those markets and local broadcasters’ ability to sell local advertising. These concerns then serve as the basis for restricting the carriage of distant signals or requiring the payment of compensation to broadcasters for the alleged harm suffered, and

• Second, demands that all conventional television stations be distributed in their local markets by all BDUs with a presence in such markets, including DTH BDUs (which, as national distributors, have a presence in all local markets). These demands have increased as some local broadcasters plan to turn off their OTA transmitters in markets where there is relatively small demand for their signals, pursuant to the parameters of the digital transmission policy.

Local Signal Integrity

19. Parties expressing concern about local signal integrity have argued that changes to the regulatory regime should be made to ensure that OTA broadcasters receive the territorial exclusivity for which they contract with program suppliers, and that this territorial exclusivity is key to their profitability. The argument is flawed in a number of respects.

20. The Canadian regulatory regime has allowed the retransmission of distant signals via microwave since the inception of cable television systems. The satellite retransmission of distant signals was authorized in the early 1980s with the licensing of Canadian Satellite Communications Inc. (or “Cancom”, now known as Shaw Broadcast Services). OTA broadcasters have thus known for more than 25 years that the territorial exclusivity that program suppliers may have purported to grant to them was subject to the importing of distant signals via BDUs.

21. Contractual relationships between OTA broadcasters and program suppliers are not regulated by the CRTC, and one presumes that the OTA broadcasters would have taken the limits on territorial exclusivity into account in negotiating program supply agreements. Contractual relationships should respect the regulatory regime and the regulatory regime should not change to grant an OTA broadcaster a desired contractual result. If OTA broadcasters pay more for programs than they should, they should be responsible for the consequences.

22. In fact, the importation of distant signals is only one of many factors contributing to market fragmentation. The growth of specialty services and the availability of alternative sources and types of programming (e.g. over the Internet, smart phones and the black market) are much more significant.

23. Furthermore, local stations that are part of large networks or stations groups are not “local” stations. As Peter Miller has noted in the paper prepared for the CRTC in the BPN 2009-411 proceeding entitled “The Business of Canadian OTA Television – 2009”:

By the late 1990s, … the major players in private English-language OTA TV clearly ran OTA TV stations as national businesses with the emphasis on national programming, infrastructure and revenues. VP/General Managers of local stations, once senior heads of their own local businesses were gradually relegated to a lower status of “branch plant operators”, taking most orders from head office and with little autonomy other than managing local retail sales and local news within clear budgets.

24. Such stations differ only in the limited amount of local programming – usually just local news – that they offer. These stations distribute primarily the national programming provided to the station by the network or station group. Territorial exclusivity on such programming may relate to Canada as a whole, but is not typically purchased on a market-by-market basis. The costs of such programming are allocated to the station by the network or station group and not negotiated, and similarly the revenues from national advertising placed by the network in such programming may also be allocated. The method of allocation is within the network or group’s discretion.

25. The more that CTV, for example, pays for U.S. programming, the less profitable will a local affiliate appear to be. In this regard, Peter Miller observes that:

There is also no doubt that, the current economic downturn aside, the single largest reason for reduced profitability of the English-language national OTA TV business is significant increases in US programming costs. In the last five years alone, foreign, predominantly US, programming costs have grown significantly in excess of revenues, for private OTA broadcasters, to a high of $775 million in 2008 or 36.25% of revenues, from $570 million or 27.63% in 2004.

26. The suggestion that the local station is selling local advertising in all of the programming that it distributes – i.e. local programming, national programming and U.S. programming – is not accurate. Peter Miller’s study shows that advertising revenues are derived from local retail advertising, national spot (market by market) advertising, and one-spot national advertising. It is only the local advertising for which the local station is responsible.

27. Various measures have been adopted as the regulation of the Canadian broadcasting system has evolved to address the importation of distant signals. These include:

• simultaneous substitution,

• non-simultaneous deletion, supplanted by alternative measures involving payments by the DTH licensees to the Canadian Association of Broadcasters (CAB), 3

3 And payments to OTA broadcasters via the CAB by terrestrial BDUs for the distribution of distant Canadian signals and a second set of 4+1 signals on a digital discretionary basis

• the measures approved by the Commission in October 2008 in Broadcasting Public Notice CRTC 2008-100, Regulatory frameworks for broadcasting distribution undertakings and discretionary programming services (BPN 2008- 100) following a comprehensive review of the regulatory frameworks for BDUs and discretionary programming services, including

o the Local Programming Improvement Fund (LPIF), and

o consent and negotiated compensation for the distribution of distant signals,

• income tax provisions making advertising on 4+1 signals by Canadian advertisers less attractive than on Canadian OTA broadcasters, and

• the compulsory retransmission licence regime under the Copyright Act that came into existence in 1991.

28. For all of these reasons, Shaw Direct submits that territorial exclusivity and integrity of the local signal are not factors that should be taken into account in the DTH regulatory policy relating to the carriage of conventional television stations.

Local-into-Local

DTH Is A National Service

29. Shaw Direct has relied upon the policy framework supporting national DTH service in designing its system architecture. Our existing Ku-band satellites, as well as the new extended Ku-band satellite Anik G1, are designed with national beams to maximize the natural efficiencies of satellite technology. It would not be economically feasible to develop spot beams of the type that would be necessary to the delivery of local-into-local service throughout Canada. As such, precise regulatory parity between DTH and terrestrial BDUs with respect to the carriage of local signals would be unfeasible and contrary to the dynamic competition mandated by the Directions.

30. The Ministers of Canadian Heritage and Industry appointed a Direct-to-Home Satellite Policy Review Panel in 1994 to consider and report on the policy framework that should govern the provision of DTH services in Canada. In the Panel’s report in April 1995, they noted the national (indeed transborder) reach of satellite transponders and concluded that “The nature of satellite TV … makes it impossible for DTH undertakings to offer local programming.”

31. Following the receipt of that report, the two Governor-in-Council Directions were issued. Both recited that DTH distribution and PPV undertakings should operate “through licensing in a dynamically competitive environment”. The CRTC was directed in the DTH Order to ensure, among other things, that DTH undertakings were subject to “substantially the same [not exactly the same] rules that are in effect for other distribution undertakings” with respect to the distribution of programming services.

32. Following receipt of the DTH Order and the PPV Order, the Commission licensed DTH BDUs and established carriage rules for such undertakings in the Broadcasting

Distribution Regulations . The Commission acknowledged the national nature of DTH undertakings by requiring carriage in section 37 of only one programming service of each national network and the House of Commons programming service on the basic service. Conversely, terrestrial BDUs were required in section 17 of the Broadcasting Distribution Regulations to include all local stations in their basic service.

33. Moreover, despite the view of certain parties that every rule applicable to terrestrial BDUs should be equally applied to DTH services, the Commission continues to implement different rules. Most recently, it determined in Broadcasting Regulatory Policy CRTC 2010-622, Community television policy (BRP 2010-622) that regulatory parity between DTH and terrestrial BDUs would not apply with respect to community channels given that DTH undertakings, by their nature, could not provide local programming in every community.4

A/B Switch Functionality

34. Conventional television stations do not require satellite distribution to reach their local markets as they are entitled to the use of radiospectrum to provide free over-the-air reception to Canadians. In instances in which conventional television stations continue to operate transmitters, following the digital transition, and are not distributed by DTH, DTH subscribers within the signal contours may receive local television signals through the use of A/B switches. The CRTC confirmed in BPN 2004-19 that A-B switches, while not ideal, are a means of facilitating access to local television signals not distributed by a DTH licensee. Indeed, Shaw Direct respectfully submits that it is no less difficult to educate local viewers about the functionality of A/B switching as it is to provide them, as local broadcasters will foreseeably do, with information about how to access the signal using a DTV converter box (where over-the-air transmission continues) or from a BDU (where over-the-air transmission does not continue).

35. Many demands for local-into-local satellite transmission result from the fear that some broadcasters may not be able to meet the 2011 deadline for digital conversion. As part of its application to acquire control of Canwest Global, Shaw has committed to make the investments necessary to ensure that all Canwest Global stations are available in their local markets via digital OTA transmission.

Significant Numbers of Local Signals Are Already Distributed on DTH

36. There is already a substantial number of Canadian OTA signals that DTH BDUs are required to distribute as part of the basic service. Currently, Shaw Direct delivers 69 local television signals. This distribution is consistent with the Commission’s current requirement that each DTH BDU distribute the following OTA television stations:

• one television station affiliate of each nationally-licensed television network;

• a minimum of five CBC English- and five CBC French-language stations, including one from each time zone; or at least as many English- or French-

4 BRP 2010-622, paras. 84-85.

language CBC stations as it distributes from a particular English- or French- language private broadcasting group; and

• in lieu of broadcasters exercising their right to require program deletion, each DTH BDU is also required to distribute an equitable number of local OTA stations from each major ownership group (i.e. CBC, CTV, TVA, Canwest, TQS and Rogers) and at least 13 small market OTA stations.

37. Pursuant to BPN 2008-100 and Broadcasting Regulatory Policy CRTC 2010-162, Distribution by direct-to-home services of stations from the major ownership groups in the Atlantic provinces and independently owned stations across Canada , the DTH BDUs will be required as of August 31, 2011 to distribute the following OTA television stations on basic:

• one television station per province (other than in the Atlantic provinces), where such a station exists, from each of the major broadcast ownership groups (i.e. CBC English and French networks, Canwest, CTV, Rogers, Remstar and Quebecor);

• two CBC English-language stations, one CBC French-language station, two Canwest stations and one CTV station from the Atlantic provinces; and

• at least two independently owned television stations from each independent ownership group within the Grade B contour of each of the stations in question, with the basic service offered to subscribers in each province consisting of at least one such station per province within the province in question, where such stations have been licensed, or, in the case of the Atlantic region, one station per region.

38. The current requirements relating to the carriage of conventional television stations and those that will come into effect in 2011 are wasteful of scarce satellite capacity and do not provide more diverse programming. A significant amount of programming that Shaw Direct is currently required by the CRTC to distribute is duplicative, with the only distinctive local programming being news.

39. As indicated in our Capacity Report dated July 23, 2010 (which was filed with the Commission and is an integral part of this submission), Shaw Direct faces severe capacity constraints pursuant to the current regulatory framework of the CRTC and Industry Canada. Those constraints would be exacerbated by further mandatory carriage requirements.

40. Shaw Direct has access to only 54 Ku-band transponders with national beams (two of which are operated by CTV). As the Capacity Report demonstrates, Shaw Direct uses all Canadian Ku-band transponders that are available to it in its orbital neighbourhood (i.e within the arc between 107.3ºWest longitude and 111.1ºWest longitude from which Shaw Direct subscriber dishes can receive signals). Those transponders are fully utilized, and no other Canadian Ku-band capacity is currently available in Shaw Direct’s satellite neighbourhood.

41. The extended Ku-band frequencies that Shaw Direct has received permission to use from Industry Canada, and that will require a capital investment by Shaw in excess of $300 million, offer the only medium-term solution to Shaw Direct’s capacity challenges. That additional capacity is required just to meet the new distribution requirements resulting from BPN 2008-100, and could not accommodate local into local or universal service without deleting other services.

42. A requirement to distribute all OTA signals via DTH would require access to satellite capacity that Shaw Direct does not have and cannot acquire. Meeting a universal service obligation would require Shaw Direct to drop other signals that it currently distributes. The consumer backlash against such an event – which would result in a significant loss of distinctive programming in favour of a large number of signals that are identical but for the limited amount of local programming – would be significant and would foreseeably undermine the competitiveness of Shaw Direct. Indeed, it could well cause Shaw Direct and Bell to exit the Canadian DTH market, as is noted in the Capacity Reports filed in this proceeding.

43. In addition to harming DTH companies, the mandated reallocation of available DTH satellite capacity to duplicative, over-the-air services would reduce diversity within the Canadian broadcasting system and cause significant harm to discretionary programming services, particularly services that do not benefit from regulated carriage entitlements.

44. Making use of scarce national transponder bandwidth to satisfy a local into local campaign takes the strength of DTH – its national reach – and turns it into a weakness that makes DTH BDUs less able to compete with new forms of programming distribution and less able to expand the market reach of pay and specialty services that launch in order to address consumer demands for comprehensive choice. This outcome would be inefficient, provide limited benefit to local broadcasters, have a negative impact on discretionary programming services, undermine consumer choice and, in general, reduce the competitiveness of the Canadian broadcasting system.

45. Going forward, there may be alternative ways for DTH providers to deliver local television signals into local markets without using national transponders. The use of omnibus or partial channels remains an option, although any requirement for broadcaster consent will foreseeably limit its feasibility. In addition, Shaw Direct is beginning to investigate the integration of Internet Protocol-based terrestrially delivered programming into its framework of satellite services, and believes that Bell TV may be doing so as well. While this is still nascent, it is possible that this would be a far more efficient manner to provide programming/content which is not well suited to the natural strengths of satellite delivered content – i.e. content of a more localized interest. The capabilities and efficiencies of such systems will not be well understood during the timeframe of this proceeding, but will become clearer over the next several months.

46. For all of these reasons, Shaw Direct submits that the DTH regulatory policy should not be modified to require local-into-local distribution of local signals, or the addition of any more Canadian OTA television stations as mandatory signals. The policy should instead consider reducing the number of such signals and adopting measures by which

duplicative signals could be reduced and satellite capacity used most efficiently to take on the competitive challenges of unregulated applications.

High Definition

47. BNC 2010-488 does not address the distribution of high-definition (HD) signals of those Canadian OTA television stations that DTH BDUs must distribute as part of the basic service.

48. In Broadcasting Public Notice CRTC 2003-61, The regulatory framework for the distribution of digital television signals (BPN 2003-61), the Commission addressed the carriage requirements for DTH BDUs with respect to digital television signals. In that notice, the Commission made the following comments:

112. The Commission noted in Public Notice 2002-32 that the existing basic service carriage rules for DTH differ in some respects from those that apply to terrestrial BDUs. This regulatory approach, as set out in Part 4 of the Regulations, reflects the fact that DTH distributors are licensed on a national basis . It also reflects the role that DTH plays in the Canadian broadcasting system as a competitive alternative to cable.

113. The Commission agrees … that capacity constraints will be a significant factor limiting the provision of services by satellite. Given the bandwidth requirements of programming in HD format, the Commission shares the view that DTH distributors will be unable to replicate a majority of their current LD services in HD format. Moreover, the Commission notes that, although not all of the services currently carried by DTH distributors may wish to make the transition to HD, a number of new broadcast services are being added to DTH line-ups pursuant to Direct-to-home (DTH) broadcasting distribution undertakings - simultaneous and non-simultaneous program deletion and the carriage of local television signals in smaller markets , Broadcasting Public Notice CRTC 2003-37, 16 July 2003. Furthermore, the Commission's regulatory approach to access and carriage of HD pay and specialty services has yet to be determined. Consequently, today's broadcast services may have to be reconfigured and multi-satellite platforms used to meet future distribution objectives. The Commission considers that these changes will have a significant impact on DTH distributors, as well as on programming undertakings.

114. The Commission considers that the regulatory obligations of BDU licensees operating in the same market should in principle be equivalent, taking into account their different circumstances, including the differences in their distribution technologies. In view of the concerns raised by the CCTA [concerning regulatory symmetry with cable BDUs] and the potential capacity demands discussed above, the Commission will launch a separate proceeding to examine the regulatory framework governing the obligations of DTH undertakings with respect to the carriage of HD services . The issues raised by the CCTA will be addressed in this proceeding.

(emphasis added)

49. Despite this pronouncement, the Commission has never launched the separate proceeding contemplated by BPN 2003-61 to examine the regulatory framework governing the obligations of DTH BDUs with respect to the carriage of OTA HD services.

50. The DTH BDU licences of Bell ExpressVu (now Bell TV) and Star Choice (now Shaw Direct) were renewed, subsequent to BPN 2003-61, in Broadcasting Decisions CRTC 2004-129 and 2004-130. No mention whatsoever was made concerning HD carriage obligations for OTA signals in these decisions or in the introductory statement to such decisions found in Broadcasting Public Notice CRTC 2004-19. Nor were any conditions of licence with respect to such obligations imposed on the DTH BDU licensees.

51. In BPN 2008-100, the Commission only discussed the HD carriage obligations for BDUs that would apply to the distribution of pay and specialty services. The carriage requirements for the HD signals of OTA television stations were not addressed, even though the Commission mandated the addition of numerous OTA stations to the basic service of DTH BDUs beginning in 2011.

52. DTH BDUs are thus currently not required to distribute the HD versions, if any, of the OTA stations that they are required to distribute on basic, and they may decide which HD signals they will distribute based on consumer demand and capacity constraints. Shaw Direct has developed its capacity plans on this basis, and submits that the current status reflects the correct approach, and should be confirmed in the DTH regulatory policy.

53. As noted in Shaw Direct’s Capacity Report, the required distribution of additional standard definition services already threatens the competitiveness of Shaw Direct. Requiring the distribution of all services in HD, where available, would exacerbate the situation. Accordingly, Shaw Direct submits that the DTH regulatory policy should provide DTH with the flexibility to provide both OTA and discretionary services in HD or SD. Market demand coupled with considerations as to available channel capacity will enable DTH to serve its customers with the HD signals that its customers most demand while remaining competitive and viable.

Simultaneous Substitution

54. In conjunction with its technology partners, Shaw Direct developed a method of simultaneous substitution known as “virtual channel override”, or “VCO”. This is a system whereby one signal distributed on Shaw Direct can be substituted over another signal distributed on Shaw Direct where simultaneous, duplicative programming is aired. Receipt of the “override” signal can be targeted to set-top boxes within a defined set of area codes, thus enabling localized simultaneous substitution.

55. Shaw Direct has made a substantial investment and commitment to the development and maintenance of VCO technology. As VCOs are localized to various areas and channels, and across a number of different channel maps, Shaw Direct manages approximately 100,000 VCOs per week. The maintenance of this system to support a high quality customer experience requires continual operational focus and resources, equipment to generate VCO messages, on-hand monitoring resources to ensure proper operation (particularly during VCOs related to sports broadcasts with uncertain ending times) and

bandwidth to support VCO messaging across the satellite network. We estimate that the costs that we incur to provide VCO are approximately $1 million per year.

56. Currently, Shaw Direct carries out VCO for all Canadian television signals carried by it over non-Canadian signals subject to the parameters described above. Within the markets of small-market independent broadcasters, VCO is also conducted on behalf of the small local broadcasters against incoming distant Canadian signals.

57. There are no issues relating to simultaneous substitution by Shaw Direct pursuant to section 42 of the Broadcasting Distribution Regulations and the conditions of its licence and the policies of the Commission. In Broadcasting Decision CRTC 2008-358, Complaint regarding the simultaneous substitution of the high definition broadcast of the 2008 Super Bowl , the Commission confirmed that Shaw Direct was in full compliance with such requirements through its use of VCO technology.

Conclusion

58. The DTH BDUs operated by Shaw Direct and Bell TV provide critically important benefits to the Canadian broadcasting system and to Canadian consumers in all regions of Canada. In establishing the DTH regulatory policy, the Commission must ensure that these benefits are not undermined.

59. The Commission must have careful regard to the nature of DTH and competitive considerations that make complete regulatory symmetry between DTH and terrestrial BDUs inappropriate, the strong competition between DTH BDUs that makes regulatory symmetry between them essential, the critical role of DTH BDUs in the extension of service, the overriding importance of meeting consumer demand, the extensive capital requirements and fiscal challenges of DTH, and the significant capacity constraints under which DTH BDUs operate.

60. Shaw Direct appreciates the opportunity to provide the Commission with these comments.

Yours truly,

Cynthia Rathwell Vice-President, Regulatory Affairs & Programming