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October 18, 2012

CRTC spikes BCE-Astral deal
By Steve Ladurantaye

‘BCE failed to persuade us the deal would benefit Canadians,’ regulator’s chairman says

Canada’s broadcast regulator has killed BCE Inc.’s $3-billion takeover of Astral Media, saying it was choosing consumer interests over corporate ones.

The “unprecented deal” would have led to higher prices for all Canadian consumers who pay to watch television, the Canadian Radio-television and Telecommunications Commission said in a ruling Thursday.

The decision stunned analysts, who expected anything but a flat-out refusal. The CRTC’s past rulings were seen to be company-friendly, with some safeguards to protect consumers. Thursday’s announcement appears to be a complete reversal of past practice.

The move is also creating political reverberations as BCE executives issued a scathing statement late Thursday evening, demanding that cabinet step in and force the CRTC to overturn its decision.

The CRTC said the deal would have put too much power in the hands of one media company and would drive up prices, because BCE’s Bell Media division would likely use its bulk to inflate prices for services such as TSN and HBO Canada when selling to its rivals.

“My intention is to put Canadians back at the centre of their communications system,” chairman Jean-Pierre Blais said following the ruling, adding the only way it could have protected consumers would have been to bring in “extensive and intrusive safeguards” that would have affected the entire industry.

“BCE failed to persuade us that the deal would benefit Canadians.”

While other high-profile Canadian mergers have been rejected in the past, mega-deals have usually been spiked by a federal government concerned about broad national implications, not an arm’s length regulator worried about pricey cable and satellite television bills.

BCE demanded that cabinet overrule the CRTC, saying the regulator was overly swayed by a massive ad campaign run by its competitors. BCE also alleged that the regulator showed bias by meeting with other stakeholders but refusing to meet with Bell.

“Considering the dire impact the CRTC’s decision will have on consumers in communities small and large, the blow it delivers to confidence in Canada’s regulatory system, and the fact that the CRTC worked so closely with cable companies to arrive at its conclusions, Bell is compelled to launch its request to the federal cabinet to direct the CRTC to actually follow its own in-place policy,” said Mirko Bibic, Bell’s chief regulatory officer.

Astral was much more understated, saying it “noted” the decision and would look at its alternatives.

The rejection of the deal – which would have seen the company own more than 100 radio stations, 30 conventional television stations and mix of 56 specialty and pay services – is the latest and most striking indication that the commission has refocused its efforts on protecting consumers amid criticism that it often rubber stamped the deals that the country’s largest broadcasters and cellphone companies cobbled together, despite its mandate to protect the public interest.

It is also a step back for Bell Media’s national strategy, since the deal was largely intended to help it bulk up its presence in Quebec, where it is in a battle with Quebecor Inc. for television subscribers. Owning Astral would have helped buttress its French-language offerings, and now the company could be put back on the block and snapped up by a Bell competitor.

The decision is a clear warning to Canada’s broadcasters and telecom companies who are bulking up in order to win a bigger share of a competitive market – if they put shareholders in front of customers the CRTC will block their deals.

It was up to Bell to convince CRTC the deal would benefit consumers, and they argued that owning Astral would allow Bell to be a Canadian champion that could help fend off assaults on the country’s broadcast system by foreign competitors such as Netflix.

But after reviewing submissions from more than 9,700 interveners and holding a week-long hearing that gave Bell’s rivals ample opportunity to beat up the Montreal-based company, the commission didn’t see any reason to allow one company to control as much as 42 per cent of the English television market and 33 per cent of the French.

“This is manifestly a pro-consumer decision,” said Louis Audet, chief executive officer of Cogeco Inc. and one of Bell’s competitors for television subscribers. “They listened to all sides and concluded the impact would be adverse for consumers.”

As part of the deal, Bell planned to spend about $241-million in mandatory “tangible benefits,” on such things as creating a French news network, developing a Netflix-like app using content from its specialty channels, upgrading broadband access in Canada’s north and funding different genres of Canadian programming.

Those initiatives are now off the table, which Bell said will hurt consumers who want to watch the Canadian-produced content that only a bulked-up Bell could provide.

Bell argued it needed to do the deal in order to compete with international rivals such as Netflix – if it owned more specialty channels and the related content, Bell argued, then it could better control its own programming costs and offer it at a competitive rates for its rivals to offer their subscribers.

The CRTC wasn’t buying it.

“BCE did not demonstrate that it needs to be bigger to compete with foreign services,” the ruling states. “The commission does not consider that there is compelling evidence on the record to demonstrate that foreign, unlicensed competitors are having a significant impact on negotiations for program rights by Canadian broadcasters.”

If the deal is indeed dead, BCE must pay Astral a $150-million break fee.

Read the CRTC’s decision here.


The players

Ian Greenberg

It looked as if Astral Media Inc.’s founder and his family might waltz out door with $50-million for their special shares in the company, but in the end it didn’t happen. Astral’s strength in Quebec, as well as specialty offerings such as HBO Canada and The Movie Network, were enough to entice Bell to agree to a $3-billion deal in April. But thanks to the CRTC, Mr. Greenberg will maintain his ownership in the 51-year-old company.

Jean-Pierre Blais

In his first major decision as chairman of the Canadian Radio-television and Telecommunications Commission, Mr. Blais proved he wasn’t afraid to flex the regulator’s muscle. He argued that “robust” competition in broadcasting simply would not have been possible with so much power in the hands of one media titan.

George Cope

The president and CEO of BCE Inc. was served his first major defeat since he took the helm four years ago, as the CRTC stuck a knife in what he said was a key digital strategy. Mr. Cope said BCE needed Astral to offer content that could compete with Netflix, but instead his company will have to cough up $150-million in fees to Astral for walking away from the deal.

Pierre Karl Péladeau

Quebecor Inc.’s chief executive officer came out the big winner after seven months of campaigning to destroy his major competitor’s chance to acquire Astral. At one time, he said the proposed merger would create a “monster.” Mr. Péladeau had been an ever-present voice in the hearings and conversations leading up to the CRTC decision, saying that even if the regulator tried to impose restrictions, BCE would snake around them.

Jacqueline Nelson