CRTC Policy

Ottawa, 26 April 1996

Public Notice CRTC 1996-59

199604260829

I. Background

In its 19 May 1995 report entitled "Competition and Culture on Canada's Information Highway: Managing the Realities of Transition" (the Convergence Report), the Commission stated that it would undertake a public process to explore further the matter of exemptions and to determine whether a more expeditious regulatory process can be devised to deal with certain classes of undertakings.

Accordingly, the Commission held a public hearing beginning 19 February 1996 in the National Capital Region. Written submissions were received from 36 parties and the Commission heard 16 oral presentations.

a) Existing Regulatory Framework

Subsection 9(4) of the Broadcasting Act (the Act) states:

The Commission shall, by order, on such terms and conditions as it deems appropriate, exempt persons who carry on broadcasting undertakings of any class specified in the order from any or all of the requirements of this Part or of a regulation made under this Part where the Commission is satisfied that compliance with those requirements will not contribute in a material manner to the implementation of the broadcasting policy set out in subsection 3(1).

The prescriptive wording obliges the Commission to consider the appropriateness of exemption whenever it examines new classes of network, programming or distribution undertakings and, where appropriate, existing classes of such undertakings.

It has been the Commission's general practice, when considering exemptions, to issue a draft exemption order for public comment. This process ensures that there is adequate opportunity for the public and interested parties to give their views prior to the Commission reaching a final determination on the matter.

Exemption orders contain a description of the class to be exempted, and set out the terms and conditions under which individual undertakings qualify for exemption. Notwithstanding an exemption order, persons carrying on broadcasting undertakings are expected to act in a responsible manner at all times, and to operate at a high standard, having regard to all relevant Commission policies. When circumstances warrant, the Commission will amend or revoke an exemption order.

b) The 19 February 1996 Public Hearing

In Notice of Public Hearing CRTC 1995-15, the Commission identified a number of issues surrounding the use of exemption orders and sought public comment on such matters as the broad policy approach it should take with respect to the exemption of classes of broadcasting undertakings; the establishment of specific criteria for the exemption of broadcasting distribution and programming undertakings; and, the possibility of developing a 'fast-track' public process with respect to proposed exemption orders.

During the written stages of this proceeding, and at the public hearing, the Commission received comments on these and other related issues from many interested parties, including broadcasters, cable operators, telephone companies, publishing interests, and the creative community.

The Commission wishes to thank all those who participated in this policy process. The comments submitted have been helpful in the development of the Commission's policy with respect to exemptions.

II The Commission's Approach To The Use Of Its Exemption Powers

a) Broad Policy Approach

Parliament established the CRTC as an independent public authority for the express purpose of regulating and supervising the Canadian broadcasting system with a view to implementing the broadcasting policy set out in subsection 3(1) of the Act. A primary power granted to the Commission in the Act is the power to establish classes of licences and to issue, amend, renew, suspend or revoke licences for undertakings operating within a given class. These powers of licensing, together with the power to make regulations, are fundamental tools provided by Parliament to enable the Commission to fulfil its mandate.

The licensing and licence renewal process provide the Commission with the opportunity to assess the ability of each element or undertaking in the Canadian broadcasting system to contribute in its own way to the attainment of the objectives of the Act. In this way, the regulator is able to ensure that the various elements adapt to changing circumstances and that there is an appropriate balance between the obligations expected of licensees and the measures designed to ensure that they have the resources required to enable them to fulfil these obligations.

The primary obligations imposed by the licensing regime are those relating to the broadcast and distribution of Canadian programs of high quality. Other important obligations include the achievement of diversity and balance, the reflection of local concerns and contributions to the development, production and acquisition of Canadian programs. Regulations and conditions of licence have been the most effective mechanisms to ensure that broadcasting undertakings contribute in an appropriate manner to the creation and presentation of Canadian programming and, in so doing, make maximum use of Canadian creative and other resources. In addition, the Commission has used its regulatory powers to ensure that licensees address issues of public concern, such as gender portrayal, violence and service to the hearing impaired; report to the Commission, and thus to the public, on an annual basis; and, through their licence fees, that they pay the cost of regulation.

In order that they may fulfil these obligations, licensed programming undertakings benefit from measures designed to ensure that they have adequate resources.

For example, conventional television licensees, being among the most significant contributors to Canadian programming, are given priority access to distribution systems. In addition, when contemplating the licensing of new conventional services in a market, the Commission must be satisfied that the market's capacity is sufficient to enable existing licensees to continue to fulfil their obligations and, at the same time, provide adequate revenues for any new entrant to do the same.

Finally, the licensing process ensures that all interested parties are able to submit comments for the Commission's consideration at regular intervals concerning the performance of individual licensees.

While licensing and regulation remain the Commission's primary tools for achieving the objectives of the Act, this legislation provides for an alternative in certain circumstances. As noted above, subsection 9(4) of the Act requires the Commission to exempt classes of broadcasting undertakings from any or all of the requirements of Part II of the Act, or regulations made thereunder "where the Commission is satisfied that compliance with those requirements will not contribute in a material manner to the implementation of the broadcasting policy set out in subsection 3(1)." Thus, it is not the size or importance of the class of undertaking to be exempted that is the test; the test is whether it is necessary for the class to comply with Part II of the Act or relevant regulations in order to further the implementation of the policy set out in the Act.

Most of the exemption orders issued by the Commission since the promulgation of the Act in 1991 have been for classes of undertakings whose services have minimal impact on the broadcasting system or are of limited capacity to contribute to the attainment of the broadcasting policy set out in the Act.

Some undertakings, such as those providing coverage of the proceedings of the House of Commons or of a provincial or territorial legislature, offer clearly important services, but have been exempted based on the Commission's determination that licensing them was not required in order to further the implementation of the Act's objectives.

For the most part, the Commission's exemption orders have met with broad acceptance by the industry and the general public. However, in three particular cases - namely the exemption orders respecting direct-to-home (DTH) satellite distribution undertakings (Public Notice CRTC 1994-111); video games

programming undertakings (Public Notice CRTC 1995-5) and teleshopping programming service undertakings (Public Notice CRTC 1995-14) - the Commission's decisions have resulted in significant debate and controversy.

In the view of some parties, the services provided by undertakings in these three classes are examples of the new types of broadcasting service that could have a significant future impact on the broadcasting system. Others have claimed that, despite the detailed descriptions of the services in the exemption orders, the Commission will not be able to monitor effectively the development of undertakings in these classes and, thus, will not be able to ensure that they make the contributions to the system expected of them, or that they adhere to the relevant industry codes.

At the 19 February 1996 public hearing, a number of parties, including telephone companies, publishing interests, and the Province of Saskatchewan, expressed support for a more expansive use of exemption orders. Many argued that any concerns relating to monitoring and enforcement could be addressed by a requirement that all undertakings operating under an exemption order register with the Commission and file appropriate information so that the Commission could ensure that all requirements of the order were being met. In this regard, Stentor Resource Centre Inc. noted that, although the Commission, in its capacity as regulator of the telecommunications industry, has largely forborne from regulating resellers of telecommunications services, it maintains a register of such companies.

Parties favouring a narrower approach to the use of exemptions included broadcasters, cable companies and representatives of the creative community. In general, these groups argued that all broadcasting undertakings should be required to make contributions to Canadian programming. They noted the difficulties the Commission might face in enforcing any such requirements for exempt undertakings and suggested that a registration system, while better than nothing, would fall short of licensing as a means of ensuring compliance and fair competition.

With regard to compliance with the terms of an exemption order, the Commission considers that any registration or reporting requirement for exempt undertakings would be difficult to enforce and would, in practice, be tantamount to licensing. Further, the Commission is persuaded by the argument that, for new classes of broadcasting undertakings whose longer term impact may be difficult to judge, it would be in the public interest to license such services at the outset, and to revisit the possibility of exempting a class at a later date, when its impact can be properly assessed.

Accordingly, the Commission has determined that a licensing regime for broadcasting undertakings will continue to be the norm. The Commission, nevertheless, will be predisposed to exempt those undertakings whose impact on the broadcasting system, and potential contribution to achieving the policy objectives of the Act, are clearly minimal and would not be enhanced by licensing and regulation.

b) The Commission's Approach to Licensing

The Commission's approach to licensing has traditionally involved a balance between ensuring that the social and cultural goals set out in the Act are met, and ensuring that Canadians have access to the widest possible range of broadcasting services. Many consider that the existence of a viable and diverse conventional radio and television sector, as well as over 30 Canadian pay and specialty undertakings, is proof of the success of this approach, particularly given the presence in Canada of all conventional U.S. television network services and many U.S. specialty television services. In considering the licensing of undertakings for the provision of new services, the Commission has generally used such tools as market impact studies to help minimize the danger of over-licensing in any given market. Such over-licensing can create difficulties for all licensees competing in a given market and compromise their ability to attract sufficient revenues to meet their licence obligations.

It has also been the Commission's general practice, upon receipt of an application for a licence to carry on a new programming undertaking, to issue a call for other applications to serve that market. This enables the Commission to make its final licensing decision from the widest and best choices available.

Nevertheless, the Commission recognizes that the environment for new broadcasting services entering any market is changing rapidly. As was noted in the Convergence Report, the Commission considers that it will remain necessary to apply "licensing criteria specifically adapted to the new emerging services and technologies." Market tests will likely continue to serve as essential tools for assessing the potential viability of proposed new conventional services, since these undertakings attract the greatest viewing to Canadian programs and are totally dependent on advertising revenues. Moreover, there is likely to be considerably greater competition in the area of domestic and foreign specialty and pay television services.

The Commission also recognizes that, as the capacity of distribution networks expands and as new, competitive, distribution systems are put in place, new classes of programming undertakings will emerge. These new classes of undertakings will likely oblige the Commission to develop new licensing approaches. While the Commission's purpose will still be to ensure fairness, public participation and a clear focus on appropriate contributions to the objectives of the

Act, its licensing procedures will need to become more efficient and more capable of dealing in a timely manner with applications proposing new services.

As a consequence, the Commission intends to develop a new approach to some of its licensing procedures. Initially, this approach will include the following elements:

i) For certain classes of undertakings, particularly those where the number of competing undertakings is of no concern, the receipt of an application will not automatically trigger a call for others. While there will continue to be an opportunity for public comment on all applications for licences, an oral public hearing will not generally be required.

ii) The Commission will review its Rules of Procedure in order to ensure that it is able to process applications proposing new services in an efficient and timely manner, without curtailing reasonable opportunities for public comment.

iii) In considering applications proposing many types of new services, the Commission will not conduct independent market studies. Rather, it will be the responsibility of interveners to provide convincing evidence, during the written process, that the proposed service will have a demonstrable and quantifiable negative impact on their ability to fulfil their licence conditions.

c) Exemption of Distribution and Network Undertakings

The Commission has issued exemption orders for eight classes of distribution and network undertakings. With the exception of the DTH Exemption Order, which was revoked on 20 March 1996, all of these relate to undertakings that have minimal impact upon the broadcasting system by virtue of their temporary nature, low power, or limited reach. In the Commission's view, these classes of undertakings do not have the ability to contribute in a significant manner to attaining the objectives of the Act.

In Public Notice CRTC 1993-74, issued following the Structural Public Hearing, the Commission noted that traditional distribution technologies, such as cable, "will face increasing competitive challenges from new and emerging distribution systems, including MDS, satellite services, telephone carriers and other communication services." In its Convergence Report, the Commission made it clear that it supported immediate competition in broadcasting distribution. With regard to telephone companies and their affiliates, however, the Commission took the position that they should be allowed to apply for licences for broadcasting distribution undertakings only when "rules have been established to remove barriers to effective competition in the local telephone business."

In licensing new distribution undertakings for a competitive marketplace, as it did in the case of the recent DTH and multipoint distribution systems (MDS) decisions, the Commission required these distribution undertakings to adhere to rules and obligations similar to those that govern the cable industry with respect to predominance of Canadian programming, priority carriage, linkage, and fair and equitable access for programming sources. In addition, the Commission considers that all new licensed distribution undertakings should make contributions to the development and production of Canadian programming.

At the 19 February 1996 public hearing, all parties agreed that major distribution undertakings should operate under similar rules and have similar obligations. Most parties considered that this was best accomplished through licensing. The position taken by Telus Corporation, the Province of Saskatchewan and Thomson Newspapers Company Limited is that broadcasting distribution undertakings should be regulated under the Telecommunications Act, rather than the Broadcasting Act. Clearly, this was not the view of Parliament in the 1991 Broadcasting Act, nor in the 1993 Telecommunication Act, and any changes to this approach could only be accomplished by amending these acts.

In light of the emerging competitive environment for broadcasting distribution services, and consistent with the Commission's general approach to exemptions, the Commission will continue, as a general rule, to license broadcasting distribution and network undertakings offering broadcasting services to the public. Nevertheless, the Commission will consider issuing exemption orders for classes of distribution and network undertakings, where they will have no significant impact on the Canadian broadcasting system. In addition, as discussed in section (f) below, the Commission will consider issuing exemption orders applicable to those conducting technical or marketing trials of distribution and network undertakings.

d) Exemption of Programming Undertakings

The Commission has issued exemption orders for 11 classes of programming undertakings. Most of these orders relate to classes of undertakings that are temporary, experimental or of limited reach. In the case of undertakings providing coverage of the proceedings of the House of Commons and/or provincial and territorial legislatures, there is wide agreement that the licensing of such services would not materially contribute to implementation of the broadcasting policy set out in the Act. However, the exemption orders relating to Video Games and Teleshopping services have been the subject of considerable debate.

At the 19 February 1996 public hearing, there was general agreement that, in making a determination whether to license or exempt a class of programming undertaking, the Commission should assess the impact that class may have on existing undertakings, and the potential contribution that undertakings in the new class could make towards achieving the policy objectives set out in the Act. Some parties considered that this assessment would best be made following a period during which the class was exempted from licensing. In this way, it was argued, new services could obtain rapid access to the broadcasting system and the Commission could evaluate their impact in order to determine the most appropriate longer term regulatory treatment.

Other parties, including broadcasters, cable distributors and representatives of the creative community, recommended that the Commission exempt a class of programming undertakings only where it is clear that the class of undertaking has no potential to contribute to the objectives of the Act and will have no significant impact upon existing licensed undertakings. Many of these parties also suggested ways in which the licensing process could be streamlined in order that new classes of programming undertakings could gain timely access to the system.

Consistent with the general approach to exemptions set out in this notice, it is the Commission's policy, generally, to exempt classes of programming undertakings only where:

i) it is evident to the Commission that the licensing and regulation of the class of undertaking will not result in a significantly greater contribution to the Canadian broadcasting system, whether with respect to the Canadian programming carried by undertakings of that class, or the expenditures on Canadian programming made by such undertakings; and

ii) it is evident to the Commission that undertakings operating under the exemption order will not have an undue impact on the ability of licensed undertakings to fulfil their regulatory requirements.

e) Review of Exemption Orders

At the 19 February 1996 public hearing, many of the parties, including the Department of Canadian Heritage, proposed that the Commission establish time limits for exemption orders, perhaps similar to the licence terms specified in broadcasting licences. It was argued that this would enable the Commission and other interested parties to review the effectiveness of exemption orders at appropriate intervals, and to take into account changing circumstances.

The Commission agrees that it would be reasonable to conduct a periodic review of exemption orders. Accordingly, all new exemption orders will be reviewed. Such reviews will normally take place five years from the date of issuance of the order and will be subject to the Commission's normal public process.

Further, in order to ensure consistency with the policies set out in this notice, the Commission intends to conduct reviews of all existing exemption orders. These reviews will normally take place between five and seven years from the date of issuance of the order. At the time of review, the Commission will expect those carrying on undertakings affected by the exemption order to file the information the Commission will require to conduct a thorough examination of the impact and contribution of such undertakings.

f) Trials of New Broadcasting Services

In 1994, the Commission issued an exemption order applicable to those conducting technical trials of Experimental Video-on-Demand (VOD) Programming Undertakings (Public Notice CRTC 1994-118). These trials were restricted with regard to their duration, the number of participating subscribers, and the nature and source of the programming offered.

At the 19 February 1996 public hearing, there was general agreement that exemptions for limited market trials or trials of new technology would be an appropriate way to encourage the development of new classes of undertakings. However, a number of parties raised concerns that market trials, if not carefully controlled, could develop into unauthorized service rollouts. The Canadian Cable Television Association, for example, submitted that the Commission should not permit situations whereby undertakings are exempted under the guise of a trial, but whose services emerge to compete with the services provided by licensed undertakings. In addition, most parties agreed that those conducting trials should provide the Commission and, subject to confidentiality considerations, other interested parties, with information garnered from the trial in order to permit an assessment of the impact of the service.

The Commission recognizes that both technical and market trials will often be necessary to ascertain how new types of broadcasting services will be accepted by consumers; what impact they may have on existing licensed services; and what, if any, potential contribution they might make to the objectives of the Act.

Accordingly, the Commission will be predisposed to issue, on a class by class basis, exemption orders in respect of those conducting technical and/or market trials of new types of broadcasting undertakings. Such trials will have strict limitations with regard to duration, geographic area and the number of participants. The limitations will be designed to ensure that trials are of a scope sufficient to generate the required information, but do not proceed directly to the full market rollout of a service.

Any person seeking an exemption for a trial should include the following information with their request:

a description of the purpose of the trial;

a description of the proposed class of undertaking;

the proposed maximum duration and scope of the trial, including the number of participants and the geographic area(s) to be served; and,

the source of the programming to be offered in the trial

If, following completion of a trial, the operator wishes to continue to carry on the undertaking on a long-term basis, either with the authorization of a broadcasting licence or of an exemption order, the Commission will require the applicant to provide it with all information necessary to assess the appropriate regulatory approach to be taken for the class of undertaking concerned.

The Commission is confident that the approach to exemptions and the new approach to licensing set out in this notice will enable it to support and encourage the development of new broadcasting services and technologies while, at the same time, ensuring that all undertakings make a positive contribution to the implementation of broadcasting policy contained in the Act.

Allan J. Darling Secretary General

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