Canadian COMPETITION LAW

“The CRTC’s well-reasoned decision to deny Bell’s application to acquire Astral addressed concerns of Canadians and consumers about the scope and impact of this transaction.”

(Canada’s largest media union,
the Communications, Energy and Paperworkers Union of Canada)

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“We commend the CRTC for this courageous decision.  We believe Canadians should have fair and open access to content”

(Rogers)

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“This is a decision that should not stand.  Canadian consumers were told today by the CRTC that they don’t deserve more – more choice, more competition, more Canadian content funding – all of which Bell and Astral committed to with this transaction.”

(George Cope, President and CEO of Bell Canada and BCE Inc.)

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“Evidently, this decision was taken in the best interest of not only the Canadian broadcasting system, but also in the best interest of all Canadian consumers.  It demonstrates the CRTC’s desire to ensure healthy competition in the Canadian communications industry and to protect the interests of consumers.”

(Cogeco Cable Inc. CEO)

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On October 18, 2012, in a decision that to be honest surprised me a little (although perhaps it shouldn’t have), the CRTC announced that it was denying BCE Inc’s bid to acquire Astral Media Inc.

The decision is noteworthy for, among other things, its speed (public hearings had only concluded about a month ago), breadth (the decision to block the deal entirely) and a further expression of the CRTC’s apparently reinvigorated focus on the consumer.  In this regard, some commentators (see e.g.: here) have noted that the decision is consistent with other recent consumer-oriented initiatives, including upcoming public consultations for a new mandatory wireless code that has started online (with public hearings scheduled to begin in the early new year) and emphasis on consumer access in the CRTC’s recently issued Three Year Plan.

Other CRTC initiatives lately also show its focus on the consumer include the first new interpretation guidelines for the upcoming anti-spam legislation issued last week (which are being criticized by some in the business sector as overly onerous to comply with and impractical in some respects) and stepped up Do Not Call List enforcement in the telemarketing area (e.g., the CRTC’s enforcement action against 85 companies for Do Not Call List violations last spring and exercising more enforcement muscle against offshore deceptive telemarketing – see e.g.: CRTC takes action against telemarketers offering anti-virus software).

In making the announcement earlier today, CRTC Chairman Jean-Pierre Blais said:

“’BCE failed to persuade us that the deal would benefit Canadians,’ said Jean-Pierre Blais, Chairman of the CRTC.  ‘It would have placed significant market power in the hands of one of the country’s largest media companies.  We could not have ensured a robust Canadian broadcasting system without imposing extensive and intrusive safeguards, which would have been to the detriment of the entire industry.’  The proposed transaction raised substantial concerns related to healthy competition, the concentration of ownership in the television and radio markets, vertical integration and the exercise of market power in an anti-competitive manner.  The CRTC was not persuaded that the transaction would have provided significant and unequivocal benefits to the Canadian broadcasting system and to Canadians sufficient to outweigh its concerns.”

In public remarks shortly after the announcement, the CRTC Chairman echoed these points saying the proposed transaction would benefit BCE but not Canadian consumers, again pointed to market share, concentration and vertical integration issues and strongly indicated that the transaction would have required significant regulation and oversight to alleviate negative effects on consumers (referring to the fact that the regulation would have to have included “unprecedented requirements”, “vast supervision” and significant “scaffolding” erected around key areas to protect consumers).  The bottom line, according to the CRTC Chairman, was that the proposed transaction would not be “a good deal for Canadians”.

In its public interest decision, issued together with its news release, the CRTC identified two broad issues: potential impacts on the Canadian broadcasting system; and proposed benefits for the Canadian broadcasting system.

In assessing these broad issues, the CRTC considered vertical integration issues (the removal of the last major independent, non-vertically integrated broadcaster transferring its undertakings to the largest Canadian vertically integrated broadcaster and telecom provider) and concentration concerns (the combination of the first and third largest discretionary television participants and first and fourth largest radio broadcasters).

The CRTC also refused to rely solely on share estimates to assess potential market power.  For example, in its decision the Commission said:

“… in the Commission’s view, the proposed transaction warrants close scrutiny due to concentration of ownership and market dominance in television and radio in both English- and French-language markets.  In addition, given the size and nature of the proposed transaction, the Commission considers that it should rely on multiple indicators of market power, competition and ownership concentration, rather than be limited to the television market share thresholds set out in the DoV policy.”

With respect to vertical integration specifically, the Commission said:

“While BCE submitted that it would be in its own best interest to make content available as widely as possible, the Commission shares the concerns of many interveners about the ability of a distributor with the content properties of a combined BCE/Astral to exert market power in an anti-competitive manner. These concerns are based on the business incentive of a vertically integrated entity to give an undue preference to its own distribution facilities by restricting access to its programming services or offering them at above market rates to its competitors. The market power of a combined BCE/Astral could threaten the availability of diverse programming for Canadians and endanger the ability of distribution undertakings to deliver programming at affordable rates and on reasonable terms on multiple platforms.”

The Commission was also critical of BCE’s divestiture plan for radio (suggesting that BCE included Bell radio stations to “trade underperforming stations for successful ones”), BCE’s proposed benefits package and absence of commitments for local radio or airplay for Canadian artists.  The Commission also refused to accept submissions that BCE required further scale to compete with foreign services.

In sum, the CRTC found that the competition, concentration, vertical integration and market power issues were very substantial and ultimately fatal to BCE’s application.

For the past several years the focus of competition enforcement and consumer protection has been on the Commissioner of Competition (until her resignation earlier this fall).  With this recent BCE/Astral decision, and other recent pro-consumer CRTC initiatives, we may well have a new sheriff in town.

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