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The Liberal government yesterday upheld the federal broadcast regulator's controversial decision to award three licences in the budding satellite radio market, a move that could dramatically alter the radio industry and trigger new demands for looser Canadian content rules.

After a heated meeting that lasted more than two hours, a federal cabinet committee rejected a high-profile appeal of the Canadian Radio-television and Telecommunications Commission's June licensing decision. An ad hoc cabinet committee and the full cabinet had made unsuccessful attempts to resolve the issue earlier in the week.

The CRTC decision triggered appeals and warnings that two satellite radio companies that got licences weren't offering enough Canadian content or French-language programming.

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Ian Morrison, head of the Friends of Canadian Broadcasting lobby group, a vocal opponent of the CRTC decision, called yesterday a "sad day for Canadian content."

He said conventional radio broadcasters will now ask Ottawa to cut their Canadian content obligations so they can compete.

The two satellite companies, each of which plans to roll out its services in Canada by Christmas, say the cabinet committee decision is good for Canadian artists and consumers.

"If we had said no to this, it would have been like saying no to the Internet," said Kevin Shea, head of Sirius Canada.

Although the CRTC's decision caused little more than a stir at the time, it led to furious lobbying and disagreement within the Liberal government as cabinet's Sept. 14 deadline for dealing with the appeal grew closer.

Neither Heritage Minister Liza Frulla nor Industry Minister David Emerson were available for comment yesterday after the operations committee's decision was announced. But the two ministers, who were on opposite sides of the debate, issued a joint news release in which they praised "the intense dialogue in recent weeks" and offered hope for the industry's future.

Mr. Morrison, however, charged that the two satellite companies won by spending lots of money on newspaper ads and lobbying.

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Those two companies -- Sirius Canada and Canadian Satellite Radio -- said the cabinet decision means new opportunities for Canadian radio listeners, artists, and other content producers.

"That's the way it's supposed to be done in Canada -- listen to everybody," said John Bitove Jr., head of CSR.

Mr. Shea said those who took a hard line on Canadian content will not be displeased with the decision in the long term.

Both Mr. Shea and Mr. Bitove said their companies' willingness to listen to their opponents and adjust their offers may have made the difference. After Liberal backbenchers took up the issue at the party's caucus meeting late last month in Regina, the satellite players offered slightly more Canadian content and French-language service.

Mr. Bitove said yesterday there's still room for more Canadian channels, although the pace of growth will depend largely on demand.

He added that his company and Sirius are hoping that developments in compression technology -- which creates more content space by squeezing the signal -- will allow more Canadian channels over the next couple of years.

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Sirius and CSR each have a U.S. partner and a plan to beam scores of U.S. satellite stations and a much smaller number of Canadian stations throughout North America. Their licences call for them to offer an array of new stations, including up to 80 from the United States and eight from Canada. But since the issue erupted over the past two weeks, they offered to increase their requirements to add two more domestic stations over the next three years.

According to one broadcasting industry source, some conventional radio station owners are planning to seek a cut in current 35-per-cent Canadian content requirements.

A source said, however, that a change to content laws for traditional radio stations is not planned.

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