Last week, BCE announced its $3.9 billion bid to acquire MTS, the incumbent wireless, internet and IPTV provider in Manitoba. BCE’s share of revenue (28%) across the telecoms-internet and media landscape is already close to double that of Rogers (16.3% market share) and Telus (15.9%). Approving this deal would only further gird Bell’s place at the apex of the Canadian communication system.
Blessing the deal would also be at cross-purposes with findings by the CRTC and Competition Bureau on several occasions last year that telecoms and TV markets in Canada are highly concentrated, while turning a blind eye to the anti-competitive behaviour that led to those findings. The number of mobile wireless competitors in Manitoba would also drop from four to three as a result, effectively putting a stake through the last government’s policy of promoting four wireless carriers across the country.
Of course, there is no need for the new Liberal Government to keep a policy created by its predecessor, but it would be well-advised to consider the real benefits of keeping this policy (see the OECD’s review for why this is so). Finally, and this is key to the analysis that follows, what if, contrary to the claims of the deal’s backers, MTS has maintained low prices while achieving profit levels and making substantial capital investment in 4G mobile wireless, fibre-to-the-doorstep and competitive TV services?
Do Low Prices Amount to a Short-Sighted Race to the Bottom and Low Quality Network Infrastructures?
So far several commentators have raised the alarm that a takeover of MTS will drive up prices as Bell, Rogers and Telus assert their dominance in Manitoba in a manner all to familiar to other regions across the country (Geist and Blackwell). Such a prospect turns on the fact that already Bell, Rogers and Telus price their plans $30 to $70 less than their equivalent offerings in Ontario, Alberta and BC to meet the rates charged by MTS and SaskTel in Manitoba and Saskatchewan, respectively. Figure 1 below illustrates the point.
Figure 1 Retail Wireless Plan Prices by Province (September 2014).
Source: MTS, SaskTel & tbaytel (2015). Telecom Notice of Consultation CRTC 2014-76 Review of Wholesale Mobile Wireless Services (para 25).
According to Bell and MTS, however, the deal is not about maintaining cheap but lower quality services at all. Instead, it is about bringing MTS out of the dark ages and into the future with an ambitious billion dollar investment program spread over five years to bring state-of-the-art fibre optic networks in Manitoba, increase the reach of Bell’s “world class” Fibe TV service, and to expand wireless 4G LTE network coverage in the province (BCE, Analyst Presentation, 2016, p. 6).
BCE’s CEO George Cope has been keen to emphasize that the market might become even more competitive after the deal. As he sees it, there will be three large firms competing even more aggressively after the deal than the current situation where MTS rules the wireless market with over half of all subscribers followed by Rogers with a third of the market share, trailed far behind by Telus (9%) and Bell (7%) (based on 2014 figures) (CRTC, 2014, unpublished data; also MTS, 2014 Ann Rpt, p. 7).
The intensification of “sustainable competition” would be especially likely, it is claimed, after Bell divests one-third of MTS’s wireless subscribers to Telus, as the deal envisions, according to Cope. The upshot is that instead of two strong competitors, MTS and Rogers, followed in the distance by Telus and Bell, there will be three “strong players”. Table 1 below shows the pre- and post-merger results.
Table 1: Mobile Wireless Carriers’ Market Shares in Manitoba Pre- and Post-Merger
Source: MTS (2015). Annual Report 2014, p. 7.
According to this view, this is how dynamic competition works. Big players with deep pockets, staying power and know-how compete vigorously with one another on the frontiers of technological and service innovation rather than on the basis of “unsustainable price rivalry”. Regulatory economist Gerry Wall also chimed in to support this line of argument, telling the National Post that while MTS wireless pricing “forced the Big Three to match [its] low prices”, such a strategy is “unsustainable”. As Wall further added:
The aggressive pricing strategy has been successful in terms of keeping customers but I think it has taxed them financially – and the investment required for 4G and next gen networks is very challenging (quoted in Corcoron, 2016, “Good Riddance to Fourth Carriers”).
In simple terms, to focus on cheap prices now might sell Manitobans down the river in the long-run if MTS is not making enough money to build the infrastructure needed to support the province in the 21st Century. These are serious issues indeed, but are they right?
I don’t think so. In fact, as we will see below, while prices are low in Manitoba compared to much of the rest of the country, profits and capital investment at MTS are actually higher than Bell’s.
Why Even Imperfect Competition is Better than a Tight Oligopoly
BCE’s bid for MTS must obtain the blessing of three regulators: Innovation, Science and Economic Development (ISED, the recently renamed Industry Canada), the Competition Bureau and the CRTC. One of BCE’s main claims in favour of the deal is that it holds forth the prospect for sustainable competition if given the green light by regulators. Seeming to recognize that this is not a slam dunk, BCE and MTS expect the review process to take up to a year.
On the basis of the standard tools typically used to examine these things – i.e. Concentration Ratios (CR) and the Herfindhahl–Hirschman Index (HHI) – the case is doubtful. In terms of the CR measure, we will go from a situation where the top four firms control 100% of the market to one where three firms will do so.
While the distribution of market shares of Bell (40%), Rogers (34%) and Telus (26%) (see Table 1 above) that will result should the deal be approved does tally with Bell’s view of things, the HHI – which is specifically designed to assess competitive intensity – tells a different story. The HHI score will decline from 3786 to 3441, but the more urgent point is that this still indicates skyhigh concentration levels. Indeed, any result over 2,500 indicates extremely high levels of market concentration. This deal will do nothing to change that.
Even these points underplay the extent to which consolidation dynamics will likely be ramified by BCE’s takeover of MTS. For instance, while Bell presents its plan to divest a third of MTS subscribers to Telus as a magnanimous gesture intended to mollify regulators, this ignores the fact that the two have had a network sharing deal that covers the province since 2001 (see Klass, 2015).
Furthermore, Bell’s takeover of MTS could leave Rogers out in the cold given that it and MTS have paralleled Bell and Telus to build jointly-shared networks of their own. MTS and Rogers first joined forces in 2009, for instance, to build a shared HSPA+ mobile wireless network in Manitoba. Similar arrangements were struck again in 2013 to build a shared LTE network; in fact, before the takeover was announced, MTS already had plans in place to cover more than 90 per-cent of Manitoba’s population with 4G LTE wireless service by 2018 (MTS, 2013 AR, p. 12).
Where Rogers will stand once that agreement comes to an end, however, has so far gone unspoken. If Rogers is left out in the cold, then the circumstances will be worse than ever, with not even a full duopoly left, given Bell and Telus’ shared interests in the province. However, even if Rogers is taken care of, so to speak, the cozy oligopoly that now straddles much of the land will only be reinforced.
That already very high levels of concentration exist and could get worse is not a mystery. As Eli Noam (2013) observes, concentration levels around the world for these markets tend to be “astonishingly high” (p. 8).
What has made the difference is regulators willing to face up to such realities and deal with them accordingly. And a key element in such responses has been the adoption of fourth wireless carrier policies. Of course, there is no magic number in terms of how many players a market can sustain but experience shows that a fourth competitor helps to break dominant players’ tendency to fly as a flock in markets defined by a tight oligopoly.
The advent of four or more rivals, in turn, results in more competitive retail pricing as well as more robust wholesale access regimes and a virtuous circle of more competitors, greater pricing diversity and the advent of mobile virtual network operators, for instance – all of which helps to breakdown barriers to adoption. This is especially important in Canada with respect to mobile wireless services, where it ranks 32nd out of 40 OECD and EU countries (see Broadband Wireless Penetration sheet)
Moreover, the pursuit of the “fourth competitor” policy is far from being just a populist ploy, as some critics grouse. Indeed, with communication costs a key part of doing business within Canada and around the world, businesses are pushing for lower wireless and broadband internet prices. This is why such issues are pressing more urgently not just on Canadian policy-makers and regulators but also their international counterparts at the OECD and WTO as well (OECD, 2013, p. 21).
Profits @ MTS are High, Not Low
Claims that competition and low prices have been artificially sustained in Manitoba collide with the reality that profits at MTS are very high, not low, and much higher than BCE’s actually. Bell itself noted the point in its presentation to analysts, suggesting that MTS EBITDA rates were comparable to its own, i.e. in the 40% range (BCE, Analyst Presentation, 2016, p. 5).
However, even that low-balls the state of affairs. As a matter of fact, EBITDA at MTS has been considerably higher than those at BCE for the past six years for which data was examined. Table 2 below illustrates the point.
Table 2: Revenue and EBITDA @ MTS vs BCE, 2010-2015
Sources: Company Annual Reports.
In short, MTS has maintained low prices while achieving profit levels that are even higher than those of BCE. The same story holds for capital investment.
Capital Investment @ MTS is Not Low but Higher than BCE’s
To hear BCE boss George Cope and MTS’s CEO Jay Forbes tell it last week, MTS is starving for investment capital because cheap prices have led to low profits. Consequently, MTS is at risk of falling behind when it comes to upgrading the information infrastructures that Manitobans will need to survive and thrive in the 21st Century.
The very high levels of profit – by the standards of BCE, the communications sector, and across Canadian industry as a whole – however, paints a very different picture. The evidence with respect to capital investment also belies the claims being touted in support of the deal. As a matter of fact, capital investment at MTS has also been higher than BCE in relative terms. Table 3 illustrates the point.
Table 3: Capital Investment @ MTS vs BCE, 2010-2015
Sources: Company Annual Reports.
MTS has been investing in the range of $200 million for the past half-decade or more. At best, BCE’s commitment to spend $1 billion over the next five years will hold the line on what MTS has been investing. In other words, the deal offers nothing better than what is currently on offer and we can only hold our breathe that BCE follows through on its pledges, but on this score, its track record does not instil confidence.
Capital Investment in 4G Mobile Wireless Services
Without taking an overly rosy view of things, MTS has made substantial capital investments in fibre-to-the-node (FTTN) and fibre-to-the-home (FTTH) networks, and to expand its 4G HSPA+ and LTE networks in cities and communities across the province. Its 4G HSPA+ and ‘true 4G’ LTE wireless networks now cover 98% and 78% of Manitoba’s population, respectively (MTS, 2015, para 20).
The latter is less than the 86% coverage that Bell has achieved in its service areas in Ontario, Quebec and the Atlantic region (BCE, 2015, p. 10), but this reflects two things: first the more rural and dispersed nature of Manitoba’s population and, second, the fact that the deployment of new networks takes place in “step changes”, with early leads typically being transitory. In any case, the gap that currently exists will likely narrow during the next 18-24 months as MTS reaches its goal of 90% population coverage by 2018 (MTS, 2013 AR, p. 12). To the extent that this falls short of BCE’s aim for 98% coverage, BCE has not included any targets beyond those MTS has already made in its takeover bid.
If there’s any question about the quality of MTS’s LTE network, such concerns can also be allayed by its first place ranking by PCMag.com in 2013. Moreover, its network sharing deal with Rogers also allows it to obtain access to wireless devices that might otherwise be hard to get for smaller scale carriers like itself (MTS, 2014 AR, p. 6).
Leaders and Laggards and a World Turned Upside Down to Sell a Dubious Deal
Wireless investment is one thing, but MTS’s investment in highspeed broadband networks has been greater than Bell’s for years. Indeed, the irony of the deal now being pitched is that the laggard (Bell) seeks to take over the leader (MTS) when seen from the vantage point of broadband internet development in general, and fibre-optic based networks in particular.
In terms of residential broadband internet availability, for example, 95% of Manitobans have access to basic broadband from MTS at 5 mbps – the current broadband target set by the CRTC in 2011 — a figure that compares favourably with Bell in Quebec and Ontario (94% and 97%, respectively) but which is higher than in the Atlantic provinces, where access to 5 Mbps broadband ranges from 77% in PEI to 90% in NB (CRTC, 2014 CMR, Figure 2.0.5).
Turn our attention to more advanced fibre-based networks to the neighbourhood and the premise, and services that run overtop of these networks, notably IPTV, however, and the advantage tilts significantly in MTS’s advantage.
MTS began to roll out such services in 2003 and within a year the number of IPTV subscribers began to take off. Now, 70% of households in Manitoba have access to its IPTV service – Ultimate TV — and with internet speeds up to 50 Mbps, while FTTH is available in sixteen communities (MTS, 2014 AR, p. 12).
In contrast, Bell only began to deploy such services first in the Atlantic Provinces in 2009, followed a year later in Ontario and Quebec. Bell boasts that 7.5 million businesses and homes currently have access to its FTTN or FTTH network (Bell, 2015 BSO Submission, para 39), and that its Fibe TV is available to 6.2 million households (BCE, 2015 AR, p. 32).
These numbers may appear impressive at first blush but reconcile them with Statistics Canada data on the number of businesses and residential households in Bell’s service areas and a different picture takes shape: i.e. only about 60% of all households have access to Fibe TV, while less than two thirds of residential households and businesses have access to the company’s FTTN and FTTH network. In short, Bell was slower off the mark than MTS and continues to lag behind in terms of the uptake of these services. Table 4 below illustrates the pint. .
Table 4: IPTV Subscribers, 2004-2014
Sources: Company Annual Reports.
The uptake of the MTS’s Ultimate TV IPTV services has also been swifter than the take-up of Bell’s Fibe TV in its territory. Indeed, as Table 5 below illustrates, the take-up of MTS’s Ultimate TV is nearly twice that of Bell.
Table 5: IPTV Subscribers/Total Network Access Connections, MTS vs Bell, 2012-2014
Sources: Company Annual Reports.
Small Cable Packages, Pick & Pay TV and Consumer Choice: MTS Subscribers are Already There
The fact that IPTV take up in Manitoba is high compared to the standards that prevail in Bell’s operating areas reflects the broader fight that has been taking shape over “cable TV” during the past decade. Indeed, the conservative versus more progressive views of Bell and MTS, respectively, also comes into focus when we look closer at their respective approaches to TV.
In this regard, Bell, the largest vertically-integrated telecoms-internet and media conglomerate in the country, and the biggest force in TV by far (61 TV channels and one-third of all TV revenue), has fought the CRTC tooth and nail over the regulator’s push to give people more choice over their cable TV subscriptions by mandating the offering of “skinny basic”, pared down channel bundles and, by the end of 2016, true ala carte channel offerings. Indeed, having banked on the vertically-integrated model through its take-over of CTV and Astral in 2011 and 2013, respectively, Bell has been loath to yield control over its TV operations.
MTS, in contrast, is not vertically-integrated, and having taken the plunge into the TV delivery business with the launch of its IPTV services since 2003-2004, it has been eager to pick up subscribers as swiftly as it can. To this end it has been successful, with twice the number of subscribers on a per capita basis as Bell (see Table 5 above). And as part of this effort, MTS has been offering smaller TV packages for several years and even some of the most popular sports channels on a pick-and-pay basis.
Thus, as the company states in its most recent Annual Report about the CRTC’s Talk TV rulings last year:
. . . Because we offer a number of services on a standalone basis today, the changes to our systems to introduce pick-and-pay by December 2016 should also be relatively simple to implement (p. 25).
Yet, while MTS has been ahead of the curve, it also notes year-after-year that access to programming, especially high-end entertainment and sports programs, has been extremely difficult. Why? Because:
Much of this content is created and/or owned by our competitors (Bell, Rogers and Shaw), who could have conflicting interests when we negotiate for their content. To date, the CRTC has offered broadcasting distributors such as MTS limited protection against attempts by our competitors who own this content (for use in both traditional television and mobile applications) to charge us unfair rates or deny us access to this content altogether (emphasis added, MTS, 2015 AR, p. 25).
In other words, the CRTC’s attempts to introduce more competition and flexibility have been met by fierce opposition from Bell, which has turned to Cabinet and the courts in a series of bids to overturn these moves. Smaller, non vertically-integrated entities such as MTS, however, have seen the regulator as offering too little, too late.
Data Caps: Hesitant Use at MTS versus Major New Revenue Stream and Broadcast TV Protection Tool @ BCE
Another significant area where MTS has distinguished itself from Bell is in the use of data caps. As MTS comments,
. . . We are the only provider in Manitoba to provide unlimited data plans. With MTS, our customers can surf, download and stream all they want on our Internet and wireless services without worrying about paying overage charges within Manitoba. Our wireless networks, coverage and experience are all built to make it easy to stay powered and connected (MTS, 2014 AR, p. 7).
At Bell, in contrast, data caps are prevalent and so-called overage charges steep. Whereas MTS has been hesitant to use data caps to limit how people use the mobile wireless and internet access they pay for, Bell uses restrictive data caps routinely as a lucrative new stream of revenue and to protect its highly leveraged investments in broadcasting from the onslaught of over-the-top streaming service such as Netflix, Spotify and so forth.
This point strikes at the heart of Bell’s bid to acquire MTS because, as the telecoms consultancy Rewheel (2015) has shown, in markets that go from 4 to 3 wireless carriers, not only do prices tend to rise steeply but data caps become smaller and the cost of data on a per GB basis far higher. BCE’s take-over of MTS threatens to take a situation that is already exceptional by international standards (i.e. the prevalence of data caps is comparable in only three other OECD countries: Australia, Iceland and New Zealand) from bad to worse.
In sum, with data caps much less common and the cost per GB much lower in Manitoba than in most of Bell’s operating territory, the potential for similar results to take hold in Manitoba are great, especially with the CEOs and financial officers of both firms openly talking about the desire to drive up ARPU at MTS.
Some Concluding Observations and Options for What Might be Done
To be sure, one has to be careful not to idealize conditions in sunny Manitoba versus those in Bell’s operating territories. Indeed, not all is just fine in Manitoba.
The CRTC’s review of basic telecommunications service, for example, heard from one intervener after another that broadband access in both companies’ operating territories leave much to be desired. Yet, neither company appears eager to rectify the situation unless a strict business case can be made to do so. Moreover, while BCE and MTS executives have waxed on at length about how to raise average revenue per user (ARPU) at MTS, they have had little to say about how rural service might be improved (BCE, Analyst Presentation, 2016, p. 6).
The contention that conditions in the province lag those in Central and Eastern Canada, however, and that Bell will ride to the rescue of a beleaguered provincial carrier down on its knees due to populist pandering through cheap services that have undercut the potential for dynamic competition and innovation over the long run, is woefully misleading. There is no evidence that competition will become more intense on account of a marriage of the two companies, especially if Bell hands off a third of MTS’s mobile wireless subscribers and retail stores to Telus. This will be doubly certain without any game plan to ensure Rogers maintains network access comparable to what it currently has in Manitoba, but even then that would do little more than keep the tight oligopoly alive, and there is little to commend such a policy.
Furthermore, there is little to no evidence of a profit crunch at MTS disabling its ability to invest substantially in the information infrastructure needed to support the Digital Economy in the 21st Century. In fact, profit and investment levels are higher at MTS than at BCE, while prices remain substantially less in Manitoba compared to BC, Alberta and Ontario where the dominance of the big three remains solid. Despite the significantly lower prices in the province, ARPU levels at MTS are consistent with those elsewhere in Canada, implying that cheaper rates are leading to more use – exactly what the aim of good communication policy should be. Any takeover of MTS by Bell would likely see such realities quickly overtaken by Bell’s preferred model where expensive prices, restrictive data caps and high ‘overage charges’ are the norm.
So, what’s to be done? From easiest to hardest, at least in terms of political will, four options seem possible. They are:
Option #1: Do Nothing
Accept the deal as proposed by Bell with the divestitures to Telus and maybe some minor tinkering around the edges.
Option #2: The OFCOM Solution
In this scenario, Canadian regulators could join forces to arrive at a solution similar to what Ofcom did in 2011 when faced by a reduction of five mobile wireless competitors to four in the UK market. In that case, when Orange (France Telecom) and T-Mobile (Deutsch Telecom), the 3rd and 4th biggest players in the market, respectively, proposed to merge in 2011, the UK telecoms and media regulator blessed their merger on the condition that the new entity – Everything Everywhere (EE) — hand over a quarter of its prized LTE/4G spectrum to the number four player, Hutchison 3. The two other largest players – Vodafone and O2 – complained bitterly, but to no avail, and with access to spectrum, towers and other resources needed to be viable, 3 stepped into the breach to become a significant 4th player in the UK market ever since.
In the present situation, Bell’s plan to divest subscribers to Telus might look good on paper but ignores their long-standing network-sharing agreement. In the eventuality that Bell does acquire MTS, steps might be taken that simultaneously prevent Rogers from being frozen out the market once its network sharing agreement with MTS comes to an end while going further to support Telus as a larger force in the province at the same time as a new 4th player is encouraged.
Yet the chance of a new 4th player emerging in Manitoba are slim given that the most likely candidates, e.g. Shaw and Wind, already showed little interest in entering the province before the latter was taken over by the former. Indications since are that their reluctance to launch in Manitoba has, if anything, hardened. Shaw, for instance, transferred the 1700 MHz AWS spectrum it acquired at discount rates in 2008 as part of the government’s bid to cultivate new entrants to Rogers in 2014, while Wind sold 15 MHz paired AWS-1 spectrum to MTS last year (MTS, AR 2015, 6).
Thus, while potentially the most interesting and earnest option on offer, the hope of keeping four players alive — the “Ofcom Solution” — is probably the most complicated and least likely to work.
Option #3: Double-down on the open access and regulated wholesale access rules while promoting Mobile Virtual Network Operators (MVNOs)
Given that the second option is unlikely to succeed, and the reasonable prospect that a combined Bell-Telus arrangement and a marginalized Rogers might lead to an even tighter oligopoly than that which already exists in much of the rest of the country – i.e. with effectively 2.5 players – regulators might double down on the CRTC’s wholesale mobile wireless ruling from last year, while expanding it to include stricter access to towers, backhaul and for MVNOs.
Strict limits on the use of data caps might also be imposed. They might even be banished for a period of time, as the FCC recently did as a condition for blessing Charter Communications’ acquisition of Time Warner Cable and Bright House Networks (see here).
Option #4: Kill the deal
If evidence and rational argument were our guiding light, then the most palatable option – but also perhaps the most politically difficult, especially given Bell’s intensive lobbying of the new government some thirty-two times in the seventeen weeks since the Liberals have been in power – would be to simply kill the deal.
With concentration levels already sky high, it would be unseemly to bless more consolidation. This is especially so with the CRTC and Competition Bureau having found on several occasions in the past year that Bell, Rogers and Telus have significant market power in the mobile wireless and wireline markets and that they have used such power to do everything they can to give new rivals a still birth. Both regulators also arrived at similar findings on the TV side as well, to which the CRTC’s series of TalkTV decisions are a response.
Without these remedies having yet had time to produce the desired results, and Bell – more than most – fighting them tooth and nail every step of the way, giving it the green light to buy MTS would be akin to blessing bad behaviour. Moreover, Bell’s attempt to tee up a take-over of MTS within this context is a sure sign of hubris, and reason enough to turn it back.
Today, the Globe and Mail’s James Bradshaw reports that Bell Media President Kevin Crull issued orders last Thursday to staff banning CTV media outlets from including CRTC Chair Jean Pierre Blais in coverage of the recent TalkTV decisions. Interviews with Blais that had been planned for CTV show Power and Politics were cancelled at the last minute and footage of Blais was dropped from coverage at Bell’s thirty TV stations across the country.
Senior news editors and junior journalists feared for their job and mostly went along, although CTV National News anchor Lisa Laflamme and senior journalist, Robert Fife, refused to bend. The fact that this story has broke is an index of rancour in the ranks of journalists and news execs within the Bell media empire. That we know about this at all is due to some of these journalists and news executives deciding to go public with their concerns about the heavy-handed editorial meddling they are experiencing, and probably not just on this occasion.
Indeed, such concerns appear to be part of a recurring pattern. I gave a glimpse of such problems in my Bell Memos post back in late 2013, where I laid out a chain of emails originating with Bell Media President Kevin Crull calling on news executives and editors at Bell TV and radio outlets across the land to cover a report that cast Canada’s three biggest wireless companies – Bell, Rogers and Telus – in a positive light compared to what most studies on the subject conclude.
Soon after I released the Bell Memos post, I was approached by a journalist at Business News Network (BNN) with claims that the Crull emails I cited was not an isolated instance. They chimed well with their own experience at BNN, I was told. Senior editors and news managers at the BCE-owned TV channel have also adopted editorial policies and interviewing practices that give special treatment to BCE executives who appear on BNN shows such as Business Day and Streetwise, according to my source.
A redacted copy of my correspondence with BNN Insider and the memos, emails and stories they provided can be found here.
Among the content is a memo from Bell CEO George Cope calling on Bell staff to contact CRTC chair J. P. Blais – replete with his email address — to register their dismay with the CRTC’s decision in October 2012 to reject Bell’s first attempt to take-over Astral Media. The idea that all Bell employees would share such a view is presumptuous to say the least, while also sending out a signal that if they aren’t already of this view, then perhaps they should be.
The materials also outline a series of events where BNN programs have been stage-managed through “pre-interview editorial meetings” that allowed BCE executives to broadcast the company’s views on matters of public policy and corporate interests in the best light possible. As examples, BNN insider pointed to interviews of BCE executives in relation to:
- BCE’s response to the CRTC’s decision on October 18th 2012 to kill the first version of BCE’s attempt to acquire Astral Media,
- US telecoms giant, Verizon’s, possible entry into mobile phone market in 2013,
- the Canadian Government’s wireless policy designed to help foster a viable fourth national wireless competitor across the country,
- the 2014 700 MHZ spectrum auction.
As BNN insider told me, “In all my years as a journalist I’d never witnessed such editorial interference or ‘bullying’ tactics. I was shocked.” They also asked me to “keep my name off-the-record as this could jeopardize my career prospects”.
BNN Adopts Pre-Interview Meetings for Interviews with BCE Executives
According to BNN insider, the pre-interview editorial meetings just mentioned are unique only to its coverage of BCE. According to these procedures, when BCE execs are to appear on BNN programs their interviews are often preceded by special ‘pre-meetings’ “with the ‘interviewee’ on what to ask and how to ask it”. Pre-meetings are arranged by senior news managers and editors and often include program hosts as well as journalists who will be talking to the guest from BCE and asking questions on air.
Pre-meetings are also sometimes used to discuss who might make a good ‘guest’ with an opposing point of view to create the semblance of balance and objectivity. However, BNN insider states that the editors’ intent seems to be more of an attempt to stage manage opposing points of view and to ensure that BCE execs appearing on BNN are not broad-sided by their critics, rather than a bona fide effort to ensure the widest range of expression possible.
Sometimes these meetings can actually be useful, as when BCE’s resident experts give tutorials to journalists on complex technical and policy issues surrounding mobile phones and spectrum auctions, for instance. Crucially, however, even in these matters it is BCE’s experts framing the technical issues not independent ones.
The upshot, however, is that such practices look more like stage-managing the news than independent journalism.
In tandem with the Crull memos sent out across CTV1 and CTV2 and to local TV and radio stations across Canada – both today in relation to the CRTC’s Talk TV decisions and back in the late summer of 2013 at the height of the “Wireless Wars” – suggests that editorial meddling within Bell Media is extensive and routine. Such practices do not bode well for the state of the news at Canada’s largest communications and media company. They undermine the editorial autonomy of the news and compromise journalists’ work, while tarnishing the credibility of news organizations more generally in the public’s eye.
A Timeline and Synopsis of Key Events
The meetings, memos, emails and so forth given to me begin on October 19th, 2012, the day after the CRTC issued its landmark ruling that flatly rejected Bell’s take-over bid for Astral Media. They continue until the end of August 2013 when the “Wireless Wars” were at a high boil, with BCE executives appearing on BNN several times to make the case against allowing the US telecoms giant Verizon to enter the Canadian cell phone market, and against the Harper Government’s wireless policy.
October 19th, 2012 — Cope’s Memo to Bell Media Editors and Journalists: the CRTC Got it Wrong in Bell Astral 1.0
The morning after the CRTC’s landmark decision rejecting BCE’s bid to take-over Astral, BCE CEO George Cope emailed a memo to Bell Media staff relaying his anger with the decision as well as the company’s determination to do whatever it took to overturn it. Assuming that everyone within Bell Media was reading from the same hymn sheet, Cope called on those who felt so inclined to email CRTC chair J.P. Blais to let him know their views, with Mr. Blais’ email provided in order to make the task all staff were being called upon to do all that much easier.
The assumption in Cope’s email that journalists, editors and media workers across Bell Media are at one with the company’s views on the CRTC’s decision (or any issue for that matter) clashes with the principle that journalists and editors must use their own professional judgments to reach their own conclusions rather than assuming that they share a commitment to BCE’s corporate interests and views on matters of public policy.
October 19th, 2012 – Cope Goes on Business Day to Further Tell Everybody Why the CRTC Got it Wrong in Bell Astral 1.0
Later that day, Cope appeared on the BNN program “Business Day”. However, before he did, senior editors at BNN convened an hour-long “pre-show” meeting to help set the stage.
The senior editors at the meeting decided to sideline the usual hosts of the program in favour of two BNN journalists who had been working the Bell – Astral file: Paul Bagnell and Andrew McCreath. True, Bagnell had been covering the Bell – Astral merger and so had good knowledge of the circumstances surrounding the deal. However, even if that was the bona fide reason for this decision, the usual hosts were told not to recap the interview or to ask their own questions, but also to let the audience know that others with opposing views had been invited to appear but had apparently turned down the offer. It was an unusual move, and it was one that left some shaking their heads and unhappy.
That things were getting uncomfortable inside BNN on October 19th became more apparent as news that Cope was coming on to “Business Day” to discuss the CRTC’s Bell Astral decision began to spread among those working on other BNN programs. As the emails show, journalists began to consider their own stories for the day, but while they did the assignment editor made it clear that one thing they would not be covering was BCE. Indeed, while fielding queries about a third story that was needed to fill out the Streetwise segment for the day, the Assignment Editor stated bluntly, whatever the journalist had in mind, it would “Definitely not [be] BCE”. The company line on that story had already been set elsewhere and they were not about to cross it.
A key point in this exchange is that the two of the journalists involved are not full-time BNN journalists at all. Instead, they parlay their roles as business reporters at the Globe and Mail (where BCE also holds a 15% ownership stake as well and Bell Media President Kevin Crull is a board of director) into the Streetwise segment they, at least at the time, had been hosting at BNN — another indication that the media world in Canada is a small place, indeed, with BCE casting a long shadow over it.
We’ve Gotta Democracy Problem
In sum, today’s report from the Globe and Mail’s James Bradshaw reveals another piece in what is a pattern. Given the examples I have presented, this pattern is one that has also been persistent across time. That they straddle much of the time frame since Bell re-entered the media business – and journalism – after re-acquiring CTV in 2011 should give pause for concern about the wisdom of allowing such extensive consolidation to begin with.
That these events have come out at all is in some ways a relief and a modest victory insofar that they imply that journalists are so upset with the state of affairs that they are blowing the whistle. They are an index that things are not well within BCE’s telecoms, media and internet empire and amongst its journalist rank and file.
Ultimately, given it’s dominance across the length and breadth of the mediascape in Canada, this is an indicator that we have a media problem of major significance. It is also a reminder why allowing such vertically-integrated media giants was a bad idea to begin with. The room for conflicts of interest is just too great and the hubris and will-to-power of those at the top seemingly impossible to keep on a short leash.
Moreover, this is not just a media problem but a democracy problem. In essence, one of Canada’s largest telecoms and media giants appears to be using its media outlets to advance its interests and to meddle deep in government policy while torquing news coverage of such matters.
Since reports in mid-June that Verizon might be poised to enter the Canadian wireless and mobile phone market, Bell, Rogers and Telus have fought tooth-and-nail against that happening. That opposition, as this post shows, not only includes the full-on public relations assault, but a series of emails from Bell Media President Kevin Crull calling on the telecom and media giant’s news directors to cover a report favourable to the incumbents’ main arguments as well.
Key elements of this summer’s wireless wars are well-known: Telus has launched a lawsuit against elements of the Government’s wireless policy that prevent the incumbents from acquiring Wind, Mobilicity and Public. Rogers, Bell and Telus have held private meetings with Industry Minister James Moore to plead their case that the Conservative Government’s wireless policy is chock-a-block full of loopholes that give unfair advantages to foreign telecom giants such as Verizon at the expense of Bell, Rogers and Telus — and Canadians. Full page adverts taken out by the incumbents are appearing daily in newspapers across the country in a bid to convince Canadians of the same points.
BCE CEO George Cope penned an open “Letter to Canadians“; BCE Director Anthony Fell excoriated the Harper Government for its supposedly unfair wireless policy; the Globe and Mail and Toronto Star have editorialized in support of the big three telcos’ position as well; the Canadian Council of Chief Executives took the unusual step to write the Prime Minister in order to do the same. The Communications Energy and Paperworkers Union, the largest union representing telecommunications workers in the country, is also singing from the same page as the big three on this issue. The Canadian Wireless Telecommunications Association (CWTA) — the industry association that represents the collective interests of Bell, Rogers and Telus — has been selectively plucking evidence about cheaper wireless rates in Canada relative to the U.S. while distracting attention from the fact that, relative to the rest of the world, prices for nearly all cell phone service plans in Canada and the U.S. are high.
So far, however, these tactics appear to have backfired. Prime Minister Stephen Harper and Industry Minister James Moore have lambasted the companies’ campaign as dishonest, while pledging to stay the course. The Conservative Party has launched a website to counter the incumbents’ public relations campaign and trumpet the Government’s position. Views opposing the incumbents’ position have also been getting some play as well (see here and here). Canadians also appear open to the idea of a new player such as Verizon entering the market (here).
While there is certainly room for debate, by and large, Harper, Moore and the incumbents’ critics are correct, and Canadians’ sentiment in the right place. The rules the incumbents are grousing about are neither new, novel, nor filled with loopholes. For well-over a decade the consensus in international circles has been that the more competition in wireless, the merrier. The policy at home has taken some time to catch up with this reality, but the rules now being cast as unfair have been the cornerstones of the Conservative government’s wireless policy since 2007.
The only real differences are that Canada embraced these ideas late in the game relative to others, no doubt due to the incumbent’s intransigence, while foreign ownership rules continue to be far more restrictive in Canada despite last year’s decision by the Government to relax them “for companies that have less than a 10 percent share of the telecommunications market”. The basic ingredients of the international consensus are straight-forward, although everywhere their introduction has been fiercely contested by incumbents bent on maintaining their dominant market positions: spectrum set-asides for new entrants, reduced foreign ownership restrictions, network tower sharing agreements and open interconnection rules.
To get a glimpse of the vintage of these basic principles and rules, take a look, for example, at the OECD’s Communication Outlook from 1999 (p. 28), and every volume since then, or the authoritative collection of chapters in William Melody’s edited Telecoms Reform from 1997. I will write more about the finer points of wireless policy in the near future. The point that I want to stress for now, however, is that the big three’s scorched earth approach on this issue is leading to other interests and important principles being thrown under the bus.
Some employees at Rogers and Bell, for instance, report being brow-beaten by managers to email a form letter in support of the companies to the government. More troubling, and a point that has not yet seen the light of day, is a chain of emails originating from Kevin Crull, the President of Bell Media — the largest media enterprise and one of the largest news organizations in the country — calling on news execs and journalists across CTV, CTV2 and local TV channels and radio stations across the country to cover a study that suggests that the state of wireless in Canada is not as bad as its critics claim. A copy of the emails, with the names of non-executives removed, can be found here.
The emails begin by setting out a couple of definitional issues and then distill the two key talking points to be covered: (1) that cellphone rates in Canada have fallen in recent years and (2) that they are generally cheaper than in the US. By the end, the message is clear: “Kevin Crull our President wants us to give this report some coverage….” and “Kevin is asking if this report can get some coverage today on Talk Radio. National news is covering for TV”.
By the time the chain of emails is done, a veritable whose who of BCE’s executive suite have been brought into the loop: Wendy Freeman, President CTV NEWS; Richard Gray (Head of News, CTV2); Ian Lurie (COO Astral Radio); Kevin Bell (General Manager/Sales Manager CTV Vancouver Island/C-Fax and KOOL FM); Eric Proksch, (VP and GM for Bell Media Radio); Charles Benoit (Astral); Chris Gordon, (President of Radio and Local TV news); Mirko Bibic (Executive VP and Chief Legal and Regulatory Officer).
Perhaps this is not all that surprising. The stakes are high, given estimated wireless revenues of over $20 billion in 2012. Moreover, with the combined market capitalization of Bell, Rogers and Telus tumbling by roughly $8.4 billion (from $85 billion to $76.6 billion) between June 17 when Steven Chase and Rita Trichur at the Globe and Mail first broached the possibility of Verizon entering the Canadian wireless industry and yesterday, August 26th, the companies are doing whatever it takes to preserve their entrenched dominance of the Canadian wireless market and the bloated market capitalization levels that go along with a cozy oligopoly.
While it is understandable, perhaps, that BCE would deploy its journalistic resources to protect its place within the wireless oligopoly, this is not good for journalism or Canadians. It casts a cloud over the independence of CTV national news as well as news programs across the CTV2 network and Bell Media’s local tv and radio stations across the country. While we know of this particular instance, how many other directives from on high have been sent over not just this issue, but other ones in which Bell sees its interests at stake?
Ultimately, the problem is this: with revenues from wireless, wiredline, Internet, IPTV, cable/satellite services at BCE in 2012 of $17.4 billion, nearly eight times its $2.4 billion in revenues from TV and radio, news is a minor cog in BCE’s corporate machinery. Journalism, in other words, is subservient to the company’s attempts to prop up the value of the ‘transmission’ and technology side of its business.
Perhaps the fact that journalists and the news divisions of such TMI conglomerates will be deployed to protect dominant market positions and capitalization might not be all that surprising, but it should still be concerning to journalists and the rest of us who need them to offer views of the world unvarnished by their corporate overlords. That the execs at BCE and Bell Media news divisions went so cheerily along with Crull’s memo serves neither journalism nor the public well.
CMCR Project 2012 Data Release: Concentration Trends in the Telecom-Media-Internet Industries in Canada, Part 1
Highlights (original posted to Canadian Media Concentration Research Project website)
The CMCR analyzed the financial results for Canada’s biggest TV providers, radio broadcasters, specialty, pay and video-on-demand services as well as cable, satellite TV and IPTV providers released by the CRTC in early April. Our analysis shows that concentration levels in 2012 remained high in all areas, except radio.
Using two standard research tools to assess media concentration – concentration ratios and the Herfindahl-Hirschman Index (HHI) — our analysis shows that:
- Concentration levels for all of the industry segments for which the CRTC released data, except radio, remained high in 2012;
- However, such levels eased slightly in all segments addressed relative to 2011, except for specialty and pay TV services.
You can access all of our raw data not just for 2012, but from 1984 onwards here.
Coupled with the annual reports of publicly-traded companies, the CRTC’s 2012 data allows us to construct a fairly comprehensive portrait of the current state of telecom, media and internet concentration in Canada.
While concentration levels remain at the high end of the spectrum according to both the CR and HHI measures, and by international standards, there was a slight uptick in competition in four out of the five areas covered by the CRTC’s data for 2012:
- In the $3.5 billion conventional TV sector, the CR4 declined from 87% to 83%, while the HHI score dipped slightly from 1966 to 1943. The decline is likely due to the fact that Bell and Shaw saw small declines in their revenues and market share, while two mid-size TV stations that were formerly a part of Canwest have continued to carve out a spot for themselves: the employee-owned CHEK TV in Victoria and Channel Zero’s CHCH in Hamilton.
- A small dip could also be seen in the $7.5 billion total TV segment (an amalgam of conventional TV with specialty and pay TV), where the market share held by the big four — Bell, Shaw (Corus), Rogers and Quebecor — declined from 79% to 77%, with a corresponding decline in the HHI score as well.
- Trends for the $8.7 billion cable, DTH and IPTV pointed in a similar direction, with the big four’s share declining modestly from 83 percent to 81 percent, largely due to the growth of Telus, MTS and Sasktel’s IPTV services in western Canada and Bell’s IPTV offering in Ontario and Atlantic provinces.
- Finally, the $2 billion radio industry continued its long-term downward drift, with the CR4 sliding from 55.5% to 53.4%.
Concentration levels in the $4 billion Pay and Specialty TV services – the fastest growing and most lucrative segment of the TV industry – stayed steady at the high end of the CR4 (81.6%) and HHI (1905) scales. This is likely due to the fact that the growth of newcomers such as Blue Ant and Channel Zero was offset by a rise in Bell’s share of pay and specialty TV services, largely because of the substantial increase in revenue at its English and French-language sports channels, TSN and RDS, respectively.
The preliminary analysis offered thus far is important because the CRTC released the 2012 data in early April, just days after its deadline for submissions regarding BCE’s renewed bid to acquire Astral Media. As a result, none of the interveners was able to include it in their formal, written submissions to the public hearings that took place last week, except for Bell.
Bell filed an updated analysis based on the 2012 data with the CRTC in its Reply to interveners on April 16. In doing so, it used the new data to repeat and buttress its rejection of critics’ claims that the deal gives Bell too much market power:
. . . close review and analysis of the post-divestiture Bell-Astral in each of the English and French television markets – regardless of the metric employed – proves otherwise (Bell Reply, para 46).
Consequently, Bell asserted, there are no barriers from the standpoint of media concentration that should stand in the way of the CRTC approving the deal (Bell Reply, 2013, pp. 4, 11 – 20; also see the report Bell submitted from its consultant, CMI here, Appendix 3, or here). With today’s release of the CMCR data, readers can examine the evidence for themselves and draw their own conclusions.
Regardless of whether you agree with Bell’s view of the world or not, the fact that Bell and nobody else could update the public record for the Bell-Astral hearings using 2012 evidence is deeply troubling. I will have more to say about these issues in a series of upcoming posts. However, as the Commission settles in to make its decision on the Bell-Astral transaction, the public should have as much access as possible to the evidence upon which key elements of the decision will turn.
The CMCR project does not just present the relevant data company by company, or on the basis of ‘before’ and ‘after’ snapshots to gauge, for instance, the one-off impact of the Bell-Astral transaction on Bell’s stand-alone share of the TV market. Instead, our analysis of the 2012 data relies on two fundamental tenets of good scholarship on media concentration:
(1) a long-term focus on concentration trends over a 28-year span from 1984 to 2012;
(2) using two standard research tools to examine the structure of media markets rather than changes in the stand-alone market shares of individual media firms: Concentration Ratios and the Herfindahl-Hirschman Index (HHI).
These research methods are essential because snapshots of just one or two media sectors or firms are often selectively used to make unwarranted generalizations about the larger media ecology. Moreover, ‘before’ and ‘after’ snapshots fail to capture dynamic trends over time. These are precisely the kinds of commonly used techniques that serve to muddy the waters, and that sound methodology in media concentration research is explicitly designed to counteract (Noam, 2009, chs. 1-3; IMCR, nd; CMCR, 2012).
Analysis of the 2012 data also reconfirms the existence of a fundamental problem in the CRTC’s data for pay and specialty TV: key aspects of it cannot be reconciled with the results found in the audited annual reports of several companies covered by the Commission’s data sets. Tallying up the CRTC’s data for Astral, for example, yields a figure of $540.9 million, while the company’s Annual Information Form indicates a figure of $562 million, after the revenues from its two conventional TV stations, in-house advertising and online segments are excluded (see p. 8 and PWC, 2012, pp. 45, 52 and PWC, 2013, p. 60).
Nor is the Astral example an anomaly, as I will show in a subsequent post. This is not a view that we reached lightly but only after lengthy discussions with a Commission analyst well acquainted with the Individual Pay, Pay-per view, Video-on-Demand and Specialty Services Financial Summaries being referred to.
We hope readers will find our analysis of the 2012 data helpful in relation to other matters, as well. In the next week we will also release our analysis of the 2012 data for vertical integration between cable, satellite and IPTV distributors (BDUs) and TV and radio broadcasters in English- and French-language markets, and for Canada as a whole.
Our analysis will also be updated as new data becomes available for the remaining telecom, media and internet industries covered by the CMCR project: wireless and wired telecoms, Internet access, search engines, music, newspapers and magazines.
 The CRTC released total revenue figures for pay and specialty TV and broadcast distribution services; it did not do so for conventional TV or radio. To estimate revenues for these two sectors, we used last year’s cumulative annual growth rates cited in the Communications Monitoring Report, while checking that figure against other quality sources such as PriceWaterhouseCoopers’ (2012) Global Entertainment and Media Outlook, 2012 – 2016 to help ensure the reliability of our estimate.
This is a first take on today’s decision by the CRTC to approve BCE’s return to the broadcasting business (full decision here). For those with what constitutes an elephantine memory in these fast and harried times, BCE had taken CTV over once before, in 2000 and failed. It left the television business six years later. Today, it returned with the CRTC’s blessing and typical sop thrown to the Canadian ‘broadcasting system’, albeit at perhaps an even more meagre and self-serving level than usual.
The decision allows Bell Canada Enterprises a second run at making vertical integration and so-called synergies work between its telephone, satellite and ISP (i.e. network infrastructure) businesses and the largest media group in the country, with its CTV and A-channel networks, 31 satellite and cable television channels, 28 local television stations and 33 radio stations. The only things really different than 10 years ago is that BCE has dramatically scaled back its ownership stake in the Globe & Mail (the Thomson family holds the rest) and sprawling media conglomerates have, by and large, gone out of fashion since the turn-of-the 21st century.
Another important thing that should catch our eye is that the value of CTV is now less than it was a decade ago, not because the tv business has shrunk — overall it has expanded from a $5 billion industry to one worth $7 billion (adjusted for inflation) — but because the first six year’s of BCE’s tenure were pitifully poor. CTV was worth less than half its original value when BCE left in 2006. Today, and after all the growth in the industry plus the acquisition of CHUM, the combined value is about the same as CTV was ten years ago: $2.45 billion.
That number is important because it’s the one that the CRTC uses to peg the value of the contributions that BCE will have to pay into the ‘broadcast system’ in order to gain the CRTC’s blessing. At ten percent, BCE’s contribution is $245 million. Even worse, $65 million of that amount will go to directly into the pockets of Bell TV, BCE’s direct-to-home satellite provider.
The rest is for the usual content, news, drama, culture, music, etc. etc. funding — the ‘cultural industries’ sop that the CRTC requires and that company’s on the prowl exploit to line up support for their take-overs from media workers, directors of Journalism and Communication schools across the country, and so forth. The result is greater media concentration blessed by the state with a few crumbs off the table for others with a stake in the game.
Others, with broader interests can go packing. The CRTC fudges the language to conceal the fact that while vertical integration and media conglomerates are on the wane elsewhere, they’re on a tear here in Canada, despite the regulator’s supposed new rules limiting media concentration set into place in 2008.
Elsewhere, the crash in the value of the turn-of-the-21st century star of collosal-sized media conglomerates, Time Warner, wiped out nearly a quarter of a trillion in market capitalization, falling from an estimated worth of $350 billion in 2000 to $78 billion in 2009. AT&T also went belly-up in its aggressive move from the wires into all things media, only to be resurrected in 2005 when the moribund company was bought out by SBC. Vivendi Universal in France is another poster child of media conglomeration gone bad. Others examples are as easy to pile up as leaves in autumn.
But here in Canada, in a manner akin to what takes place in oligarchic capitalist societies — think Russia and South America — giant media enterprises are again on the rise. Today’s blessing of BCE’s acquisition of CTV/CHUM (A-Channel) follows last October’s approval of Shaw’s take-over of the financial wreckage that was Canwest television, and at fire-sale prices to boot!
Of course, the trend is not all in one direction. Indeed, swimming against the tide, in the U.S., Comcast’s, that country’s largest cable provider, acquisition of NBC – Universal was approved by the Dept. of Justice and FCC (but also see Commissioner Michael Copp’s scathign dissent). Besides being exceptions to the rule, it is interesting to compare the US decision approving Comcast’s take-over of NBC with the CRTC’s decision to sanction BCE’s acquisition of CTV/CHUM.
In the US, the Dept. of Justice and FCC put fairly tough demands on Comcast to make its television and film content available to Internet competitors and ‘online video providers’ (OVPs), to adhere to open Internet requirements and to “offer broadband services to low-income Americans at reduced monthly prices; and provide high-speed broadband to schools, libraries and underserved communities, among other benefits” (FCC Press Release).
The CRTC, in contrast, will look at issues of vertical integration in a future set of hearings that it intends to hold on the issue in June. Any of the other issues are not even on the table, or at least so it appears.
Well, another sad day in Canada. A great opportunity to articulate vision and to implement ideas and practices that could build one of the most open media systems in the world. Instead, at the CRTC and in Canada’s media industries, it’s business as usual.