A taxing situation

It likely comes as no surprise that phone bills and TV bills are bloated by fees to cover government programs.

Your phone bill subsidizes rural and remote communications services and access to emergency services. Your TV bill not only includes subsidies for Canadian content production, but also includes mandatory monthly fees for channels most of us never watch. And even though many of us tune into the Weather Network once in a while, most people likely have no idea that the monthly fee for that channel also covers the cost of operating the National Public Alert Distribution system.

Think about that for a minute as Canadians prepare to see the first test messages show up on our phones. The cost of distributing alerts to mobile phones is being borne by people who subscribe to cable TV.

The CRTC is currently reviewing the stations that qualify for 9(1)(h) “must carry” status. The term “9(1)(h)” refers to the section of the Broadcast Act:

  1. require any licensee who is authorized to carry on a distribution undertaking to carry, on such terms and conditions as the Commission deems appropriate, programming services specified by the Commission.

I was struck by the presentations from a number of these stations, such as TV5 and APTN, that their programming is providing an important public service. It is understandable why these stations should be available on every broadcast distribution system in order to ensure availability of their programming to minority groups across the country. However, the issue in my mind is how these channels are funded.

In addition to any advertising revenue the stations may sell, every subscriber to a broadcast distribution system (cable or IPTV or satellite) pays a monthly fee whether they want those stations or not. Essentially, take the forecast for the revenue shortfall, divide by the forecast for TV subscribers and the result is what each subscriber is being asked to pay.

A visit to the websites of TV5 and APTN shows that much of the broadcast programming is available for streaming access, with no requirement to verify the viewer as being a subscriber to a contributing TV system. So people who have cut the cord, or never subscribed to a TV service have free access to a service paid for by TV subscribers.

There was a time when consumers had no choices. For most Canadians there was a phone company and there was a cable company. You could choose between a wall phone or a desk phone. You could choose whether you wanted add on features, like touch tone or call waiting or call display. There was no choice of service provider. TV offered very few options, effectively just different bundles of channels.

In those days, when consumers had no choice of service provider and there were no technology options, the telephone system and the TV system were able to be used as a secondary tax collection and wealth redistribution system. Want to subsidize the cost of phone service in rural and remote areas? Just tell the phone companies to charge more in the cities. Want to ensure there are minority language TV stations operating everywhere? Put a fee on everyone’s TV bill. Want to create a fund for Canadian content production? You get the picture.

The problem is that consumers now have alternatives, and not all of those alternatives are part of “the system”. Not all content providers contribute to production funds; Netflix is just the poster child for this area of imbalance. Every quarter, we read that more households have chosen to go without BDU TV service, opting to go online for their video content. So fewer and fewer households are in the denominator, from whom funds are being recovered, thereby raising the cost per household.

As the various fees increase, services that aren’t part of the system gain further cost advantages, accelerating the incentives for consumers to escape the system, and the cycle continues.

The most bizarre cross-subsidy is associated with the National Public Alert Distribution system, where TV subscribers bear the cost of the distribution of messages over the Wireless Public Alert service, by means of mandatory fees for carriage of the Weather Network.

Not only is there a mismatch between payers and the beneficiaries, but the fees are being applied in an imbalanced way to tax users of legacy services, accelerating cost advantages for subscribers to services that are outside of the system.

Is it time to reassess funding for the competitive age?

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