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BCE CEO George Cope (Peter Power/Peter Power/The Globe and Mail)
BCE CEO George Cope (Peter Power/Peter Power/The Globe and Mail)

The BCE-CTV deal

Bell's Big Bet Add to ...

With its proposed $1.3-billion purchase of CTV Inc., the country's largest telecommunications company has wrenched itself from its sleepy past and made a statement about where its future lies: It's all about video.

BCE president and chief executive officer George Cope decided on that strategy many months ago, well before the summertime negotiations that led to yesterday's deal, which will give his company ownership of the CTV network, TSN and a clutch of specialty cable channels, if it is approved by regulators.

In May, before a business luncheon at the Fairmont Royal York hotel in Toronto, Mr. Cope laid out it out in clear terms: Don't think of Bell as the old phone company any more. "Our goal is that by 2015, we'll be the largest provider of TV in Canada," he said. As TV and video content spreads rapidly from TVs to laptops and onto smart phones, Bell may be in a position to make that possible - a feat that would have been laughable a few years earlier.

Owning CTV, Mr. Cope believes, is a big leap forward in the direction he wants to go.

"We're only just getting started," Mr. Cope said in an interview on Friday. "It is absolutely a game changer for Bell."

Just a day earlier, the picture looked darker. Bell's main rival in Quebec, Quebecor Inc.'s telecom subsidiary Vidéotron Ltée, launched its wireless network and made French-language video content a key selling point for the company's smart phones. Before that, Shaw Communications Inc. slapped down $2-billion to buy CanWest Global Communications Corp.'s TV assets ahead of its own wireless launch in 2011.

And long before that, Rogers Communications Inc. had transformed itself into a converged player, capable of "bundling" broadcast media properties with its cable and wireless products.

Bell was behind and needed to get ahead. With the purchase of CTV, as Mr. Cope himself told The Globe, "we've more than levelled the playing field." It allows Bell to deal with its competitors on a more even footing - out in the market place, at regulatory hearings, and in boardroom negotiations for selling rights to its content. But the deal also puts Bell at a slight advantage, given CTV's vast array of content, which includes some French-language properties that could be of use in Quebec.

Read more about the BCE-CTV deal:

  • About the deal: BCE to take full control of CTV
  • Related contentAnalysis by Derek DeCloet: The new media convergence
  • Timeline: BCE and CTV: A brief history
  • Video: A look at the CTV deal
  • Editor's note: A great vote of confidence for The Globe
  • In quotes: What the analysts say
  • Streetwise blog: A quick look at the BCE-CTV deal metrics
  • PDF: BCE's investor presentation
  • Profile: BCE CEO George Cope

Whether distributing content over smart phones actually sells more devices remains a very open question in analysts' minds. But one thing is clear: Bell and its chief competitors will succeed or falter together, since almost every major telecom provider now owns a major broadcaster - something that poses huge questions for the country's telecom regulator and for the federal government's push to liberalize foreign ownership restrictions.

Bell's bid for CTV, while surprising to some, did not come out of nowhere. Vidéotron's wireless expansion, along with Shaw's move on CanWest - which, like Bell's acquisition now, is dependent upon regulatory approvals - changed the landscape.

"Shaw has moved into the content game in a major way. And Shaw and Quebecor are moving into the wireless game in a major way," Mr. Cope explained. "The industry structure that people saw evolve over the last 24 months made [Bay Street]understand the rationale for this."

Before Friday, Bell was a part of the old telecom regime: A simple set of pipes, a pure distributor of satellite and Internet-based TV products, Internet, home phone and wireless. Now, with CTV, Bell is now an equal with Quebecor and Shaw as the distributors negotiate for the lucrative rights to show each other's content.

It is also a very effective hedge against networks putting their content up online for free in order to circumnavigate traditional distribution channels such as satellite.

"We clearly have mitigated a threat to that model today," Mr. Cope said.

Gordon Pitts, senior Report on Business writer

"The reality is this is an insurance policy," added Greg MacDonald, a National Bank Financial Inc. telecom analyst. "It locks up content in case content has more value than conduit down the road. It means there's less risk that Canadian carriers will be dummy pipes. Because content providers will no longer be going around throwing this stuff on the Web for free."

Now, Telus Corp., long considered a target in Bell's acquisition crosshairs by those in the industry, remains the only major provider without significant content assets. "What now for Telus? That's going to be a challenge for them," said a senior Bay Street lawyer. "Consolidation in the industry is expected, both by sector players and regulators."

This consolidation provides immense marketplace benefits to companies. Regulatory sources say the Shaw and BCE acquisitions are likely to get the necessary approvals. (Though, because Bell now owns satellite and Internet TV, broadcast and radio assets - because of CTV's acquisition of CHUM - there may be some meat for the Competition Bureau). But the transformations pose big structural questions for the industry, the Canadian Radio-television and Telecommunications Commission, and the federal government.

The CRTC had become used to dealing with scorched earth rhetoric from distributors facing off against their broadcaster rivals at regulatory hearings. But now all the major distributors own their rivals, with the exception of the CBC, rendering the fiery hearings on fee for carriage essentially moot. "If you can't beat them, own them - and they have. They've all stepped up and done it. The regulator can no longer wield the power it could," said Brahm Eiley, a principal with Toronto-based Convergence Consulting Group Ltd. "Future strategy is going to be made anew now."

For Bell, that strategy is now clear: Continue investing in its fibre-optic networks to launch high-quality Internet-based TV in key urban markets where it wants to erode Rogers' and Vidéotron's cable base; expand its wireless profits and its share of the lucrative smart phone market partly by up-selling existing users with data plans that can handle the vast bandwidth required for transmitting CTV's cache of video; fend off new wireless players, such as Wind Mobile, Vidéotron, and eventually Shaw; and begin figuring out how to monetize CTV.

But there is one wild card that could hit Bell and others, one that is entirely of their own making: The impact the sector's convergence could have on the federal government's efforts to liberalize foreign ownership restrictions in the telecom industry. Most politicians wanted to liberalize telecom ownership, but the potential political fallout from tampering with the Broadcasting Act threatens to derail the whole thing.

Related contentWhat's being said on Twitter

"Does that change the view of the government in allowing foreign operators to come in?" asked a senior regulatory source in Ottawa. "Now that the big guys have got the broadcasting assets, maybe it's not a hindrance to bring in foreign operators to compete on the telecom side."

If so, Bell and the other providers have now armed themselves not only against each other, but against the potential of a much larger, foreign telecom player - such as Verizon Communications Inc., for example - coming in, buying up wireless licenses or companies such as Telus or Mobilicity, and competing with pockets deeper even than BCE.

<a title="View Read BCE's statement on the deal on Scribd" href="http://www.scribd.com/doc/37201825/Read-BCE-s-statement-on-the-deal" style="margin: 12px auto 6px auto; font-family: Helvetica,Arial,Sans-serif; font-style: normal; font-variant: normal; font-weight: normal; font-size: 14px; line-height: normal; font-size-adjust: none; font-stretch: normal; -x-system-font: none; display: block; text-decoration: underline;">Read BCE's statement on the deal</a> <object id="doc_328070471074503" name="doc_328070471074503" height="600" width="100%" type="application/x-shockwave-flash" data="http://d1.scribdassets.com/ScribdViewer.swf" style="outline:none;" > <param name="movie" value="http://d1.scribdassets.com/ScribdViewer.swf"> <param name="wmode" value="opaque"> <param name="bgcolor" value="#ffffff"> <param name="allowFullScreen" value="true"> <param name="allowScriptAccess" value="always"> <param name="FlashVars" value="document_id=37201825&access_key=key-1y7dhtni6vsvbn5zfi1t&page=1&viewMode=list"> <embed id="doc_328070471074503" name="doc_328070471074503" src="http://d1.scribdassets.com/ScribdViewer.swf?document_id=37201825&access_key=key-1y7dhtni6vsvbn5zfi1t&page=1&viewMode=list" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" height="600" width="100%" wmode="opaque" bgcolor="#ffffff"></embed> </object>

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