Direct-to-home Satellite Broadcasting

Satellite Broadcasting, Direct-to-home

Direct-to-home (DTH) satellite broadcasting is a form of SATELLITE COMMUNICATION which offers consumers significantly more entertainment options than those offered by local cable companies. While Canadians' access to new cable services has expanded incrementally by several channels per year, DTH satellites can instantly triple or quadruple the number of channels and pay-per-view (PPV) services offered by CABLE TELEVISION companies in addition to a wide range of pay-audio services. Because of this veritable explosion of available services to consumers, American DTH satellite broadcasters have operated with great success since June 1994, making it the fastest growing mass-market consumer electronics product in history.

The DTH satellite system is the first affordable mass-market broadcasting technology that enables customers to receive their programming from a provider other than their local cable service. Consisting of a portable 18-inch satellite dish and decoder box, the DTH satellite can receive programming signals in any location where it is not physically obstructed, making it additionally attractive to rural areas with no cable TV access. Unlike cable TV, though, the quality of DTH broadcasts can suffer during poor weather conditions such as heavy rain. Otherwise, the reception quality is noticeably better than cable's older analog transmission format due to its use of digital technology for its audio and video signals. Furthermore, it uses digital video compression (DVC), a technology that squeezes up to 10 video signals from an analog transmission into digital form, enabling up to 10 times the number of channels to be transmitted to the home. DVC thus conserves scarce satellite capacity and reduces distribution costs, enabling the viewer to affordably receive hundreds of channels.

Though DTH services have been available in the United States since 1994, Canada still does not have a legally operating DTH service of its own. Since then, American DTH satellite signals have spilled over the border, enabling Canadians with DTH satellites to view the American broadcasts. To date, approximately 300 000 Canadians have purchased unlicensed American DTH satellite systems on the "grey market" (meaning that they are not licensed for use in Canada, but are not technically illegal). Canadians owning DTH systems can receive dozens of American channels unavailable to Canadian cable TV watchers, though they can only receive fewer than 5 Canadian channels.

The large numbers of Canadians taking advantage of the spillover effect of unauthorized American DTH signals has become a serious problem for the Canadian broadcasting system because Canadians choosing this broadcasting option completely bypass the Canadian system. Over the past 65 years the development of the Canadian broadcasting system has been shaped by the government to fulfil numerous cultural, political and economic goals. Some of the goals of Canadian broadcasting are to cultivate and defend Canadian culture and identity, to connect Canadians across the nation to one another, and to ensure that Canadian broadcasters could afford to create and show Canadian productions.

When Canadians receive broadcasts from an unauthorized foreign DTH service, these goals are undermined. Because fewer Canadians watch Canadian programming, Canadians see more American stories on TV, cable TV companies lose thousands of customers, fewer cable TV fees are passed through to fund Canadian TV producers, advertising revenue decreases and fewer Canadians can be reached by Canadian TV advertisers.

Recent DTH Satellite History

The use of personal satellite dishes in Canada to receive broadcasting signals began in the mid-1970s. Many communities across Canada could not receive more than a few television channels because they were too small to support a cable company or were beyond the reach of the transmitters. These communities wanted a level of television service comparable to those living closer to the American border, so they set up satellite dishes to capture television services that they could not otherwise receive.

But a 1980 inquiry by the federal government into the use of personal satellites in Northern and remote communities criticized their use because they enabled these communities to receive television programming not authorized by the government. In an effort to eliminate their need for personal satellites, the government recommended the creation of a new satellite service which would broadcast television services to these communities.

Because the government could not afford to upgrade the level of service for these communities, it created a pay-TV service which would operate like the existing cable companies. This new service, Canadian Satellite Communications Inc. (CANCOM), offered a variety of Canadian services in addition to the 3 major American networks plus the Public Broadcasting System. Cancom used Canada's national satellite carrier, Telesat (see TELECOMMUNICATIONS), to deliver its services to these communities.

But Telesat, co-owned by the government and the major telephone companies, charged high rates for its use. Combined with the small number of Cancom customers, the cost of delivering this service was high, rendering the service unaffordable for many. Still without an affordable option, many Canadians purchased illegal satellite dishes which bypassed the domestic broadcasting system that could not affordably service their communities. Today, Canadians are again using unlicensed satellite dishes to receive unlicensed American television programming, this time because of its comparable cost to cable TV, its expanded programming lineup, and because it offers an alternative to cable in the absence of a legal alternative technology.

In 1983, a government report dealing with DTH satellite broadcasting supported the creation of a Canadian direct broadcasting system (DBS) to strengthen and protect the domestic system from American incursion. It correctly predicted that if an American DBS (which is very similar to DTH) began operation in Canada, it could easily wipe out the possibility of developing a successful Canadian DBS service. Out of this concern, it proposed expanding the minimal role of DTH services; instead of only distributing television services to underserved areas, it could also distribute broadcast signals to cable television companies across Canada.

Rather than boosting the role of DBS satellite broadcasting in Canada, though, this strategy only served to strengthen the cable industry's position as the primary distributor of broadcasting signals to Canadians. And instead of creating a stand-alone DBS system which would compete with cable television or an American DBS system, satellite broadcasting was simply integrated by the cable industry as another method of distributing television signals. Just prior to the launch of American DTH services in 1994, the government revived the idea of creating a Canadian DTH broadcasting system.

The Fight to Develop a Canadian DTH System

Unfortunately for the Canadian broadcasting industry, the presence of unlicensed American DTH services through the grey market has mushroomed dramatically while the Canadian DTH industry ran into numerous obstacles which prevented its launch. Approximately 300 000 Canadians now own American DTH dishes and send millions of dollars in monthly service fees directly to the US, none of which is filtered through the domestic system for financing Canadian programming. Owners of American DTH satellites also receive far less than a "preponderance" of Canadian programming, a quantity required of all Canadian broadcasters. Of the 200 available channels offered by American DTH services only 3 are Canadian: Much Music, Bravo and CBC Newsworld International.

But while Canadian consumers have been buying American DTH satellite dishes, the Canadian government has been trying in recent years to launch a Canadian DTH service before the market is saturated by American satellite dishes. Many obstacles have delayed the development of a Canadian DTH service, some of them political, some technological and some financial. Yet, all of these obstacles have interacted at various times to continually prevent Canadians from legally receiving an alternative to cable television. This is happening at a time when the Canadian communications industry and the government are trying to build the information highway through market competition between the telephone, cable and satellite companies.

Canada Takes Action

The impending launch of an American DTH service and its inevitable signal spillover into Canada led the CANADIAN RADIO-TELEVISION AND TELECOMMUNICATIONS COMMISSION (CRTC), the national regulator of communications, to try and create a Canadian DTH company which would counter the American service and protect Canadian interests. At the May 1994 Canadian Cable Television Association conference, CRTC Commissioner Fernand Belisle encouraged a number of the major players in the Canadian communications industry to make a proposal to the CRTC for the development of a domestic DTH service.

This new corporate entity, named DTH Canada Inc., consisted of telecommunications and broadcast interests which included BELL CANADA ENTERPRISES (BCE), Western International Corp. (WIC), Cancom, Tee-Comm Electronics Ltd., Shaw Communications Inc., Astral Broadcast Group Inc., Rogers Cablesystems Ltd. (see ROGERS COMMUNICATIONS INC), JLL Broadcast Group and CFCF Inc.

In order to convince this group to proceed with its plan, the CRTC was prepared to grant DTH Canada Inc. an exemption order which would allow it to operate without a broadcasting licence. Another condition of the CRTC's exemption order gave them monopoly control over the entire Canadian market with the requirement that the DTH service be offered exclusively through Canadian satellites. This condition prevented the participation of DTH Canada's main competitor, DirecTv Inc. of Los Angeles. DirecTv had planned to deliver its American programming via its own U.S. satellite and was thereby disqualified from the Canadian DTH marketplace.

In its quest to legally offer its services in Canada, DirecTv was obligated to conform to Canadian corporate ownership rules as laid out in the Broadcasting Act. It did so by forming a partnership with Power Broadcasting of Montréal, enabling it to enter the Canadian DTH marketplace and legitimately lobby the government as a Canadian competitor to DTH Canada.

At this point in time the 3 cable companies, Shaw, Rogers and CFCF, as well as Astral and JLL, pulled out of the DTH Canada Inc. consortium. This left the newly named ExpressVu Inc. with 4 primary owners, Tee-Comm, WIC, Cancom and BCE.

The government's April 1995 Report of the Policy Review Panel on Direct-To-Home Satellite Broadcasting recommended that the government overturn the CRTC's exemption order. The Panel overturned the exemption order because of the discriminatory condition which obliged the exempted company to use Canadian satellites for all of their signals, be they Canadian or American. This condition was unfair to ExpressVu's potential competitor, Power DirecTv, because while it was forbidden to use its existing American satellites to distribute the US channels on its service, Canadian cable companies were authorized by the CRTC in the early 1980s to receive US signals directly from American satellites.

The requirement for Power DirecTv to act differently than cable companies was not only inconsistent, but it also served to guarantee ExpressVu (which could comply with the condition to distribute all services via Canadian satellites) a monopoly over Canadian DTH services while Power DirecTv was excluded. The Panel thus recommended that DTH services be required to have identical requirements as the cable industry regarding the use of foreign satellites. This enabled Power DirecTv to use an American satellite and compete with ExpressVu in the Canadian marketplace.

After the Report's release, the CRTC refused the government's request to change its DTH policy and endorse the Panel's proposals, leading the federal Cabinet to use one of its special powers and issue an Order-in-Council, which empowered it to direct the CRTC to hold licensing hearings for DTH services. These hearings began on 30 October 1995 with ExpressVu, Power DirecTv and Shaw applying for licences.

CRTC Licence Requirement

The CRTC handed down its decisions on 20 December 1995. ExpressVu and Power DirecTv were granted licences for national direct-to-home satellite distribution undertakings while Shaw's application was denied. According to its new regulations, the CRTC sought "to extend delivery of broadcasting services to Canadians in underserved areas, to provide competition to cable undertakings, and to act as a made-in-Canada solution to the threat of unauthorized DTH services in the Canadian market." In its treatment of Canadian programming, the CRTC recognized the technical difficulty and expense of uplinking local and regional programs for a national service and determined that for the basic programming tier the only mandatory carriage requirement for the licencee is the 3 national Canadian television networks: CBC English, CBC French and a CTV signal.

Furthermore, the DTH licencee was also obligated to dedicate no less than 51% of its service to broadcasting Canadian programming. Funding for Canadian cultural programming by DTH undertakings was established at a minimum 5% of gross annual revenue beginning in year one, continuing indefinitely.

In its decision, the CRTC rejected Power DirecTv's requested subsidy to offset its uplinking and compressing expenses for its digital signals. Without these subsidies, Power DirecTv claimed, it could not economically afford to launch a DTH service in Canada. The economic incentive for Power DirecTv to launch a Canadian service was already seriously undermined by the growing grey market in the American DirecTv services, which was sending $7.5 million per month to the American DirecTv company.

Shortly after they received their licence, Power DirecTv announced that they would not launch their DTH service. Power DirecTv's "withdrawal" from the Canadian DTH market left the CRTC back at square one with only a single licensed DTH undertaking, ExpressVu.

Satellite Collapse

In the early morning of 26 March 1996 Canadian DTH broadcasting suffered a serious setback when one of Telesat's 2 satellites, the Anik E-1, experienced a major malfunction. The accidental separation of one of its solar panels cut the satellite's power and carriage capacity in half and disrupted many broadcasters, news operations and even Arctic telephone service. Because of this, ExpressVu, and any other DTH service, lost any possible Canadian satellite space, further compounding the already floundering Canadian DTH industry.

The Deal to Find More Space

In an attempt to secure more satellite capacity to make up for the loss to the Anik E-1, Telesat filed an application with Industry Canada for the exclusive rights to use the 2 best high-powered satellite orbital positions over Canada at 82° and 91° west longitude. These positions are extremely valuable because satellites parked there can reach all of Canada and the US. In an effort to procure more satellite space without paying several hundred million dollars for the launch of its own satellite, Telesat attempted to strike a deal with the largest U.S. cable company, Tele-Communications Inc. (TCI), for the 82° position, and TelQuest Ventures LLC for the 91° position.

The deal called for Telesat to launch 4 DTH satellites, 2 in each orbital position. Telesat would buy two pre-constructed satellites from TCI, put one in each orbital position and offer satellite TV service to both Canada and the U.S. TCI would then lease back 27 of the 32 channels. The remaining 5 channels would be leased by Telesat to ExpressVu for DTH services.

The deal ran into opposition from American DTH companies and the US government. Five major US DTH companies filed petitions with American communications regulator, the Federal Communications Commission (FCC). They demanded that the FCC deny landing rights (the right to receive and distribute signals) to the TCI and Telquest signals because it was seeking a "back door" entrance into the U.S. DTH market and thereby giving TCI and Telquest an unfair competitive advantage over other DTH operators.

The US President's Office, the Department of Justice, the Department of Commerce, the Department of State and the US Trade Representative's office all urged the FCC to defer its decision on the Telesat-TCI plan until the US government reviewed the implications of the proposal for cross-border policy. Their position was based on their ongoing concern that Canadian cultural policies (minimum 50% Canadian content restrictions) were discriminatory to US communications services and that no agreement exists regarding the reciprocal use of American and Canadian satellites.

The deal was not consummated for several reasons. Firstly, the Canadian government would not open discussions with the U.S. government on possible modification to cultural requirements. Secondly, the Minister of Industry, John Manley, would not give Telesat a licence granting them official control over the 2 orbital positions.

Future of DTH in Canada

The current pressure on the Canadian government to enter into a reciprocal arrangement for satellite usage with the U.S. originates with the 1996 U.S. Telecommunications Act. This Act calls for reciprocal access to markets for telecommunications services.

If agreed upon, the idea of a sovereign, national, domestic satellite policy for Canada would erode in the face of transnational agreements which will pave the way for the introduction of levels of unregulated foreign programming never before available in Canada. It would enable any Canadian company to use American satellites and avoid domestic satellite regulations, making Canadian content regulations invalid. Furthermore, under a reciprocity agreement, the kinds of cultural supports and subsidies which protect Canadian companies from U.S. competition would be dismantled, either voluntarily, or through the international trade courts.

Though no authorized Canadian DTH carrier is yet operational, the growing grey market for the pizza-sized satellite dishes has already changed the broadcast distribution market by taking thousands of customers away from cable television. By the time the service is launched, the U.S. DTH services will have had a full 3-year head start and it is unclear whether any Canadian broadcaster could reclaim those customers already lost to the grey market.