Vancouver: At press time, Calgary’s Shaw Communications was still deciding whether to appeal by Sept. 4 the recent decision by the crtc to deny the cable giant its proposed acquisition of 48% ownership in the broadcaster that operates Headline Sports.

But while the public face of the ruling is about a lack of channel capacity and concerns about ‘undue’ competitive advantage through the consolidation of the industry, many observers regard the decision as a not-too-subtle reprimand against Shaw for pushing the fairness boundaries in the specialty channel business.

After all, it is the first time in about four years that the crtc has denied a business transaction of this sort – in 1995, Videotron lost a bid to keep television station tqs in Montreal – and the first since specialty-channel equity rules were tightened up in 1996 to discourage vertical ownership by cable companies.

At the same time, the negative decision casts, for Shaw, an alarming pall about how the commission will handle Shaw’s upcoming hearings about the acquisition of wic, which comes with its own specialty channels. Shaw clearly wants wic’s specialty and premium stations, but the loss of the Headline Sports decision puts into question how amenable the commission will be in approving the transfer of the wic specialty signals to Shaw.

Decision

In the July 21 decision, the crtc killed a request by Sportscope Television Network – operator of the Headline Sports specialty channel – to transfer 683,000 of its common shares (48%) to Shaw in Calgary. The proposal, according to the regulator, represents more consolidation of the industry and, for Shaw – already the second largest cable operator in Canada – the prospect of an ‘undue’ competitive advantage.

‘In examining the current broadcasting distribution environment,’ wrote the crtc in the decision, ‘the Commission finds that market conditions with respect to channel capacity and competition have not materialized to the extent previously anticipated. The Commission considers that the current channel capacity and the level of competitiveness are not sufficient to effectively mitigate any potential undue preference that may be conferred by cable operators on undertakings in which they hold an interest.

‘Given Shaw’s extensive vertical and horizontal holdings in the Canadian broadcasting industry, its dominant market position could lead to gate keeping and other anti-competitive practices. Consequently, the Commission considers that approval of this application would not be in the public interest at this time.’

In media reports, Shaw Media president and ceo John Cassaday (who was on vacation at press time and, therefore, not available for comment) warned against drawing parallels between the details of the Headline Sports decision and any deliberations regarding the wic purchase. No other member of Shaw’s management team was available to explain Shaw’s next actions.

Observers, however, consider the decision to be a clear line in the sand for cable companies that may have already overstepped – in the eyes of a new beefed-up, no-nonsense commission – their boundaries.

In the postmortem following the launch of the most recent round of specialties, for example, concerns were raised regarding the preferential treatment Shaw gave its own children’s specialty, Treehouse tv, by putting the service on basic cable.

And factors affecting the Headline Sports purchase are expected resonate in Rogers Cablesystems’ quest to gain regulatory approval to double its 20% stake in ctv’s SportsNet, set to launch this fall.

Narrow implications

Peter Miller, senior vp at the Canadian Association of Broadcasting, maintains, however, that the decision against Shaw ‘is not a setback toward the trends of greater rationalization, consolidation and vertical integration, which is a pattern that is necessary and positive for the growth of strong companies not just in Canada but around the globe. This is a particular case that shows the Commission’s discomfort with how Shaw has handled its affiliated specialties.’

The cab supported the swap of shares as long as appropriate safeguards were put into place to ensure market fairness.

Meanwhile, Jane Logan, president and ceo of the Specialty and Premium Television Association, applauds the decision to stop the Shaw-Sportscope transaction.

‘The commission has recognized that disputes over fair access and cable self-dealing are tied to the shortage of cable capacity,’ she explains in a press statement. ‘By linking ownership privileges for the cable industry to and adequate supply of cable channels for all players, the crtc goes to the heart of the matter. The Commission has clearly signalled that increased cable ownership of these specialty services will not be approved until channel capacity has increased. With this decision, the crtc has provided strong motivation for cable operators to accelerate the roll out of digital technology.’