CRTC denies Bell-Astral takeover

BCE Inc.'s (BCE-T) $3.4-billion deal for Astral Media (ACM.B-T) has been killed by the country's broadcast regulator, which said the merged mega-company would be impossible to police without imposing "extensive and intrusive safeguards" that would affect every broadcaster in the country.

Hours after the decision BCE released a statement saying it was shocked and appalled by the decision and that it would ask federal Cabinet "to issue direction to CRTC to follow its own regulatory policy." The decision is a breach of the CRTC's Diversity of Voices policy, and protects cable conglomerates and rewards their extraordinary and obstructive lobbying efforts, the statement said.

"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," said George Cope, President and CEO of Bell Canada and BCE Inc.

It was up to executives from BCE and its Bell Media division to convince the Canadian Radio-television and Telecommunications regulator 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 percent of the English television market and 33 percent of the French.

"BCE failed to persuade us the deal would benefit Canadians," said chairman Jean-Pierre Blais, who took over the post earlier this year and has quickly put a populist stamp on the regulator. "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."

Bell planned to spend about $241 million in mandatory "tangible benefits" money 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 likely off the table.

Bell also asked to convert CKGM Montreal, which is branded as TSN Radio, into a French sports channel. That request was also denied.

Astral founder Ian Greenberg and his family were to be paid about $50-million for their special class of shares, but they will now be keeping those shares rather than cashing out. But Astral doesn't walk away completely empty-handed - the original agreement said Bell would pay the company up to $150 million in break fees if the deal was struck down by regulators.

The companies announced the $3.4-billion deal in April, and it was quickly framed as an attempt by Bell Media to expand its presence in Quebec and better compete against rivals such as Quebecor Inc.

But as the months passed, Bell made the case that 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 … Internet platforms continue to be complementary to the traditional broadcast system."

Astral owns a portfolio of English and French specialty channels such as HBO Canada and Teletoon, as well as radio stations and an outdoor advertising business. Combined, the original deal would have seen the company control more than 100 radio stations, 30 conventional television stations and mix of 56 specialty and pay services (BCE owns a 15 percent stake in The Globe and Mail, and its president Kevin Crull is on the Globe's board of directors).

At the September hearing, a steady stream of competitors argued that the merger would put too much power in the hands of one company. They argued that Bell - which owns both distribution platforms with its IPTV and satellite services as well as much of the content it broadcasts - would use its heft to gouge them when selling them popular channels such as TSN and the Movie Network.

While all of Canada's television providers compete with one another for subscribers, they rely on channels from companies such as Bell to repackage and offer to their own subscribers. They worried that Bell would charge them unfair rates that would leave them in an awkward position - either they charge their customers more so they could access the channels, or not offer the channels at all and risk losing those customers to Bell.

In both instances, they said, Bell wins.

"This deal will be a point of no return for the future of telecom and broadcasting in Canada," Quebecor chief executive officer Pierre Karl Péladeau said on the first day of the week-long hearing. "The impact of this type of domination would be multiple and would stifle any form of competition. No other company would be able to compete with the power of Bell."

Again, the commission agreed, saying that Bell would have the "incentive and the ability to unduly exert market power to the disadvantage of 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."