By David Farrell
TekSavvy wins appeal. Now demanding millions from Bell, Rogers
TekSavvy Solutions Inc. (TekSavvy) is head over heels following the unanimous decision from the Federal Court of Appeal (FCA) rejecting appeals filed by Canada's largest telecom and cable companies (including Bell Canada and Rogers), which sought to overturn a key CRTC decision concerning the wholesale rates the large carriers charge TekSavvy and the other independent Internet service providers.
In dismissing the appeals with costs, the FCA noted the large carriers' arguments were of "dubious merit". The FCA also lifted the Stay on the implementation of the CRTC's August 2019 rate decision, which confirmed that the large carriers overstated their costs of providing wholesale access to their networks for years, corrected their rates based on evidence of their costs and ordered the large carriers to repay amounts they overcharged competitors over the 3 year process. The CRTC previously condemned the large carriers' rate-fixing conduct as "very disturbing" because it would drive smaller competitors out of business and deny Canadians choice for Internet services.
TekSavvy previously filed a formal Complaint with the Competition Bureau, detailing how Bell and Rogers deviated from CRTC-costing rules to inflate wholesale rates they charge competitors, while offering competing retail prices below the wholesale costs they had inflated. TekSavvy submitted that the Government of Canada should order the Competition Bureau to investigate Bell and Rogers' wholesale rate-fixing activities because it harms competition and keeps Internet prices artificially high at the expense of millions of Canadian consumers.
"The FCA decision is a major step forward in the fight for fair Internet pricing for Canadians. The arguments of Bell and the other carriers have been revealed to be just more baseless tactics designed to stifle competition and keep prices high", says Andy Kaplan-Myrth, TekSavvy’s VP of Regulatory and Carrier Affairs.
Based on the CRTC's August 2019 rate decision and the Aug. 11, 2020, Federal Court of Appeal decision, TekSavvy now claims it is owed tens of millions of dollars by the large carriers. “Every month, Bell and Rogers continue to game the system and their inflated wholesale rates continue to stifle competition and gouge consumers,” the company said in a statement. “TekSavvy expects that the CRTC will once again direct the large carriers to file updated tariffs with the corrected final rates and to refund monies owed, consistent with the CRTC's prior direction before the Stay. Until that outstanding balance is paid, in full, TekSavvy will be applying the amounts owed, with interest, as a monthly credit on the wholesale fees charged by Bell and Rogers.”
CRTC Broadcasting Sector Overview
Total broadcasting revenues for Canada’s broadcasters declined by 1.3% between 2018 and 2019, according to a report released by the CRTC. The biggest drop in revenue was from CBC conventional television, as it collectively reported a decrease of $116 million (or 12.2%).
Radio stations continue to report declining revenues in 2019. This year, commercial stations reported an annual growth rate of -3.9%, the largest year-over-year decrease in the past 5 years. This decline is also greater than the 5-year Cumulative Annual Growth Rate (CAGR) of -2.4%.
Over 700 commercial radio stations reported revenues of $1,453 million in 2019, compared to $1,513 million in 2018. Ethnic radio stations outperformed all other stations with a reported 2.6% growth rate while both French-language stations (-3.3%) and English-language stations (-4.4%) reported declines in revenue.
The most pronounced decline was reported by English-language AM stations (-7.0%), while the largest increase was reported by Ethnic FM stations (6.0%).
In contrast to the trend in recent years, national time sale revenues declined by a greater percentage than revenues for local time sales (-5.0% and -3.6% respectively).
For the first time in 8 years, conventional TV stations have shown annual revenue growth. Commercial TV stations reported revenues of $1,554 million in 2019, compared to $1,541 million in 2018. The year-over-year increase of 0.8% is mostly due to a 3.6% increase in national time sales.
Quebec was the only region to post a year-over-year revenue decline (-4.4%) while the Atlantic region posted the highest growth (8.1%).
Independently-owned stations received over $21 million in revenue from the Independent Local News Fund, which was established in 2018 to support non-vertically-integrated conventional stations that provide local news. This represents a 2.1% decline from the previous year.
While conventional television station revenues grew, and despite a 1.4% decrease in total programming and production expenses, overall expenses still exceeded total revenues for the fifth consecutive year. Conventional stations posted a negative PBIT of -$109 million in 2019, compared to -$134 million in 2018.
Canadian programming expenditures (CPE) increased by 2.2% in 2019. Conventional television stations reported $670 million in CPE in 2019, compared to $655 million in 2018. The vast majority of the increase in CPE came from the Music and Entertainment program category, specifically the category increased by approximately $24 million in 2019.
The CBC reported a decrease of -10.9% in total revenues for its conventional television this year, declining from $1,063 million in 2018 to $947 million in 2019. The decrease can be partially attributed to the absence of revenues from the Olympic Games.
Commensurately, CPE expenditures also decreased to $494 million this year from $580 million in 2018.
Together, 6 educational stations reported nearly $186 million in revenue and spent nearly $66 million in CPE in 2019. In 2019, government funding of educational television represented 79% of total revenues.
For the third consecutive year, discretionary and on-demand services reported declining revenues and reduced spending. However, the profitability of discretionary services increased from 23.6% in 2018 to 26% in 2019. The profitability of on-demand services also increased from 13.4% in 2018 to 14.2% in 2019; in both cases, this increase was primarily caused by a decrease in expenses.
These services spent over $1.6 billion on Canadian programming in 2019.
Revenue growth rates of the nearly 300 discretionary and on-demand services varied by the language of the services. French-language and Ethnic services reported negative revenue growth of -3.6% and -8.6%, respectively. However, for the first time since 2016, English/Bilingual services experienced a slight year-over-year revenue growth rate of 0.6%.
English/Bilingual services continue to be the most profitable services. This year, the English/Bilingual services reported a PBIT margin of 29%, while the French-language and Ethnic services reported margins of 9.6% and 6.7%, respectively.
Discretionary services reported nearly $1.64 billion in CPE in 2019. Over 50% of the CPE for discretionary services was spent on sports programming, followed by 15% on news programming.
Of the $331 million allocated to music and entertainment programming, $61 million was spent on reality television.
Television service providers (BDUs) continued their downward trend, albeit at a slightly slower rate than the previous year. The continued uptake in IPTV services is helping offset drops reported by cable and satellite providers (Direct-to-Home).
Over each of the past four years, television service providers have reported negative revenue growth, although the decline of -0.8% in 2019 is the lowest since 2015. Overall revenues dropped by $67 million, from $8,421 million in 2018 to $8,354 million in 2019.
Although cable and satellite service providers continue to report drops in revenue, declining by 2.1% and 3.0% respectively in 2019, this annual rate of decline is significantly lower when compared to the five-year average annual declines of -3.6% (cable) and -5.8% (satellite).
The trend for IPTV revenues has continued in 2019, with lower revenue growth in 2019 than in previous years. IPTV revenues grew by $86 million or 4.1% in 2019, compared to the five-year average annual growth rate of 8.4%.
The average revenue per subscriber increased by 1.9% in 2019. The average subscriber paid $66 per month which is a 1.9% increase over 2018.
Operating margins for the industry were a healthy 16.5% in 2019, though this included declines of 1.4% over 2018 and 3.9% over 2017.
While satellite service providers have reported the largest drops in subscribership of the three television service provider segments, they continue to have the highest profitability of all three segments: 28.1% (satellite); 17.6% (cable); and 4.5% (IPTV).
