HERI Committee Report

MAINTAINING A SINGLE SYSTEM

Chapter 16
The Black and Grey Satellite Market

As noted in Chapter 8, interest in and demand for satellite television services has been steadily growing in Canada in recent years. Satellite distributors in Canada now account for 1.7 million of the total 2.8 million, or over 60%, of all digital television customers.¹ The CRTC currently licences two suppliers to provide direct-to-home satellite television services to Canadians. Bell ExpressVu, the larger of the two, has approximately 1 million customers, and Star Choice, owned by Shaw Cable, has approximately 700,000 customers.² Together, over $2 billion has been invested in the provision of satellite services by the shareholders of Bell ExpressVu and Star Choice.³

Canadians generally cite access to a greater variety of channels as a primary reason for opting for satellite service. As well, in some rural areas cable access is difficult if not impossible, making satellite service an attractive and at times the only option.⁴

Both Bell ExpressVu and Star Choice use slightly different technology and are thus not compatible with one another, but both systems are equally compatible with present television sets as well as television sets using newer, digital technology.⁵ Therefore, the choice of which satellite service Canadians wish to subscribe to is a matter of consumer choice, limited to one of two Canadian companies. No other North American company is licenced to provide satellite signals to Canadians.

A. The Technology

Satellite and broadcasting technology allows a television broadcaster to send a signal to a satellite located in orbit above the earth, and the satellite will send back the same signal covering a portion of the earth's surface (the signal's "footprint"). The technology thus allows a signal to be sent directly to any place that has a device for receiving the signal — hence the term "direct-to-home" (DTH) television.

In order to protect the commercial value of satellite television services, the signals are "encrypted" or scrambled by the broadcaster. To be received in intelligible form, the signal must be decoded or descrambled. If viewers wish to receive these signals they must subscribe to the channel or channels providing the signals. Upon purchasing the necessary hardware and paying a fee, the broadcaster will supply viewers with some form of authorization unique to the subscribers' decoder allowing them to receive the signals.

Canadian residents who subscribe to ExpressVu or Star Choice and who own an ExpressVu or Star Choice direct-to-home satellite television decoding system are authorized to decode the encrypted subscription programming signals transmitted by ExpressVu or Star Choice and view the programs for which they have subscribed.

Similar services operate in the United States. DirecTV and EchoStar are licenced by the U.S. Federal Communications Commission (FCC) and are authorized to have their encrypted programming signals viewed in the United States. Under FCC rules these U.S. signals are not authorized to be viewed outside the U.S.

The satellite signals sent by broadcasters, however, do not recognize international boundaries. As the footprint of the signal may cover a large area, it may also cover parts of two or more adjacent independent nations, such as Canada and the United States. With the necessary decoder and key, signals originating in one country may be received in another.

B. How Existing Laws Apply

The interplay among three pieces of federal legislation govern how satellite signals may be lawfully distributed in Canada: the Radiocommunication Act, and to lesser extents, the Broadcasting Act and the Copyright Act.

Section 9 of the Canadian Radiocommunication Act states that "no person shall ... decode an encrypted subscription programming signal or encrypted network feed otherwise than under and in accordance with an authorization from the lawful distributor of the signal or feed". For the purpose of this Act, a lawful distributor is a "person who has the lawful right in Canada to transmit [the signal] and authorize its decoding".⁶ This means a CRTC licence holder — that is, Bell ExpressVu and Star Choice. Those in violation of section 9 may be subject to imprisonment or fines up to $75,000.

Section 2(1) of the Broadcasting Act defines "broadcasting" as "any transmission of programs, whether or not encrypted, by radio waves or other means of telecommunications for reception by the public by means of broadcasting receiving apparatus, but does not include any such transmission of programs that is made solely for performance or display in a public place".

Section 3 of the Broadcasting Act sets out the foundation of Canadian broadcasting policy, which has a clear cultural orientation. It states that the broadcasting system is a "public service essential to the maintenance and enhancement of national identity and cultural sovereignty" (3(1)(b)). It also enumerates a number of specific developmental goals for the broadcasting system in general and broadcasters in particular (3(1)(d) through (t). It further states that "the Canadian broadcasting system constitutes a single system" best regulated and supervised "by a single independent public authority" (3(2)).

Lastly, the Copyright Act provides broadcasters with a copyright in the communication signals they transmit, granting them the sole right of retransmission (subject to the exceptions in s. 31(2)) and, in the case of a television communication signal, of performing it on payment of a fee. This prohibits the unauthorized reception of signals that violate copyright.

C. Why the Grey Market Exists

As mentioned above, a growing number of Canadians are subscribing to satellite television services in order to increase the number of television channels they can receive. However, despite access to over 350 channels on the Bell ExpressVu system, for instance, some Canadians prefer to obtain satellite signals from U.S. suppliers, citing wider choice and greater selection as their reasons. For example, although Bell ExpressVu offers many U.S. channels in its satellite packages, the popular HBO channel is not one of them. Similar claims are made with respect to a lack of choice in Canada for language and religious programs, both of which are more abundant on U.S. services. Because the legality of obtaining unlicenced U.S. satellite signals in Canada was not clarified until an April 2002 decision of the Supreme Court of Canada,⁷ this practice was referred to as the "grey market," reflecting the ambiguity of the law on this issue. Since April 2002 this is undeniably illegal in Canada.

As an example of the choice offered by grey market satellite systems, one witness appeared before the House of Commons Standing Committee on Canadian Heritage to explain "why it is that 99% of Canadian Latinos who are watching television in Canada at the moment are watching it through the grey market."⁸ Choice is clearly a significant issue:

Through the grey market, they can easily subscribe to 26 Spanish-language channels to watch programs in their mother tongue and follow developments in the land of their birth. For this reason, U.S. satellite systems are very openly sold in the Latin community. Dealers have websites and place full-page ads in community newspapers. You'll find those ads in my information kit. Systems are found in many Spanish bars and restaurants. They've been sold in church basements after Sunday mass and featured as prizes in raffles.⁹

This behaviour is not unique. Similar dealer visibility and practices are found in the Arab, Greek, and Russian communities. Across Canada, the message from ethnic communities is the same: If Canada's cable and satellite companies don't want to serve us in our language we'll buy our services from someone else. An identical attitude exists south of the 49th parallel, where some Americans subscribe to Bell ExpressVu to have access to Canadian channels, French-language services, and hockey games.

At this time, there are four foreign Spanish-language stations with a CRTC category 2 licence, but none is currently distributed by satellite in this country.¹⁰ For this reason, one witness told the Committee that he would:

... like to see the CRTC having more flexible rules for allowing foreign satellite channels to be rebroadcast in Canada. In my mind, this does not lead to weakening of the Canadian cultural identity, but the opposite: it leads to improvement, enrichment, and strengthening of the Canadian cultural identity.¹¹

These comments and evidence stand in contrast to the statement of Mr. Michael Wernick, Assistant Deputy Minister, Cultural Development, Department of Canadian Heritage, who said:

It's not my impression that Canadians are just dying to get out there and get to U.S. dishes if they are given the opportunity. Quite the contrary. It was attractive before 1995, because there was no Canadian option. Now there are two. We've gone from zero to a million satellite subscribers in about four years, and the growth is still continuing.¹²

For its part, the CRTC has made it very clear that it does not condone black and grey market activities:

On the contrary, the Commission is extremely concerned about the activities of grey and black market dealers and the negative effect that these activities have on the Canadian broadcasting system. It is committed to take all measures at its disposal to limit such activities. In this regard, the Commission notes that black and grey market activities have been declared by the Supreme Court of Canada, in Bell ExpressVu Limited Partership vs Richard Rex et al, to be contrary to the provisions of the Radiocommunication Act.¹³

D. How the Grey Market Works

Grey market satellite system vendors sell American direct-to-home decoding systems to Canadian customers who wish to subscribe to U.S. satellite television services. Since Federal Communications Commission (FCC) rules do not permit U.S. signals to be viewed outside the U.S., these vendors supply Canadian customers with U.S. mailing addresses and then contact the U.S. broadcasters on behalf of his Canadian customers and establishes a legitimate U.S. account and subscription to U.S. satellite television services. Once the hardware is purchased, all subscription fees have been paid and the authorization to decode the television signals is obtained, Canadian customers can receive U.S. satellite television.

The Black Market — Grey Market Distinction

Satellite systems supplying direct-to-home U.S. signals to Canadian customers are commonly referred to as "grey market" systems. There is, however, a distinction between "black market" systems and "grey market" systems. A black market system is one in which programming services and signals are stolen by various means designed to circumvent the proper operation of the authorization system. Typically someone obtains an illegal copy of a legitimate access card or code from either an individual or a dealer acting illegally. This illegal card then allows a user with reception equipment to receive satellite television signals without paying for them. The signals that are stolen (or "pirated," as it is sometimes referred to) may be either unauthorized U.S. signals or authorized Canadian signals stolen by means of a hacked or cloned "smart card" or other technological means. With pirated signals, the broadcaster has not authorized the delivery of its services to that particular "customer" and is not being properly compensated for the service. This is therefore stealing. It is like hacking in to the telephone system to get access to free phone service rather than paying the monthly fee. Black market satellite systems and pirated signals are undeniably illegal as a form of theft.

Grey market systems, on the other hand, are those in which programming services are obtained from a service provider who is not licenced to provide those services within the particular jurisdiction, such as being licenced to provide signals within the U.S. but not in Canada. In this instance, the services are paid for and thus the broadcaster is being properly compensated for delivery of service. However, there has been some subterfuge engaged in, such as the provision of a false U.S. postal-box mailing address, to make it appear as though the person receiving the signals is a resident in the territory for which the service provider is legitimately licenced.

It is important to note that in this scenario, Canadian customers pay in full for the services they receive from U.S. satellite services. Prior to the April 2002 Supreme Court of Canada decision resolving the issue,¹⁴ the legality of grey market systems was open to question due to conflicting lower court decisions on the proper interpretation of the prohibition against receiving unauthorized signals found in section 9(1)(c) of the Radiocommunication Act. As a result of the Supreme Court decision, there is no question now that grey market systems are illegal under the Radiocommunication Act.

Estimating the Size of the Black and Grey Market

The black and grey market in U.S. satellite signals exists as a parallel shadow to Canada's two licenced satellite signal providers. According to one witness, "Unauthorized competition from black- and grey-market U.S. direct broadcast satellites, or DBS services, is a critical problem and is growing worse."¹⁵ This view was emphasized by another witness, who observed that "the presence of black- and grey-market direct-to-home satellite services has increased, not diminished, and continues to pose a threat to our broadcasting system."¹⁶

Although it was acknowledged that the precise extent of the black and grey markets are difficult to measure,¹⁷ a survey conducted by the Canadian Cable Television Association "estimated that between 520,000 and 700,000 households in Canada receive unauthorized U.S. DBS services."¹⁸ This figure confirmed Bell ExpressVu's own estimate of approximately 600,000 unauthorized U.S. direct-to-home satellite users.¹⁹ The number of unauthorized users roughly corresponds to the number of legitimate Star Choice customers, representing, in effect, a third, albeit illegal, option for Canadian satellite television customers.

The survey commissioned by the Canadian Cable Television Association focused on the incidence of authorized and unauthorized satellite use among households in southwestern Ontario in late February and early March 2002.²⁰ It revealed that one in five households in southwestern Ontario receives satellite services, and of that 20% figure, between 22% and 28% emerge as "potentially unauthorized users"²¹ in that they could not or would not name their satellite service provider. This translates to a range of 4.5% and 5.7% of the market in southwestern Ontario.²² The report indicates that due to inherent difficulties in measuring illegal and grey market numbers, it is very likely that this figure underestimates the true number of unauthorized users in the survey area.²³ The survey concludes that at a conservative minimum there are 28,035 households using unauthorized satellite services in southwestern Ontario.²⁴

In extrapolating these figures to a national level, the survey notes a few caveats. First, it suggests that the estimates based on the research in southwestern Ontario are likely conservative and therefore likely under-represent the total number of unauthorized users.²⁵ Further:

There is little reason to believe that the incidence of unauthorized satellite usage would vary significantly in English speaking regions of Canada. It is likely, however, that the incidence may differ in French-speaking Canada, particularly within Quebec, where the demand for English-language services would be lower. This lower demand in Quebec may be offset by a higher incidence of unauthorized use of Canadian service providers that carry all available French language services.²⁶

Given these assumptions and caveats, the survey projects the total number of national unauthorized satellite users to be between 475, 864 and 715, 269 households.²⁷

Proximity to the United States

Several witnesses informed the Committee that unauthorized satellite use was more significant in areas in close proximity to the U.S. — Canada border:

The selling of decoders in grey-market satellite dishes and black-market dishes is a huge business in New Brunswick due to our proximity with the American border. It's not only an Ontario phenomenon.²⁸

This view was consistently repeated by witnesses across Canada:

But as we make all of these investments and commitments to the province, operators from across the border, as we've seen, have been taking away business. In last week's buyer flyer in Saint John, for example, of ten advertisements offering satellite systems for sale, seven were for American systems with HU cards for either black-market or grey-market systems.²⁹

And:

Our sense of where the problem is, in some sense, most acute is in southwestern Ontario. That is not a remote region of the country. These are very populated areas, but they're close to the border. The dealers are able to bring that stuff across the border with impunity. There are no limits in bringing these dishes in. They're sold at the store, and people then can go to a local convenience store to buy the cards. We've done that just to see how easy it is to do. It's not illegal to sell the cards. It's not illegal to buy the dishes.³⁰

And:

We experience a larger loss the closer our systems are to the U.S. border. For example, in Estevan, which is only a few minutes from the American border, our losses are substantially higher than in, say, Yorkton. But it is significant. I think the comment was made earlier that people will watch what they want to watch, and I think any restrictions on that — by definition — drive more people to black market and grey market. Our customers, at least out here, tend to rebel when they're told what they can and can't watch. They tend to opt out of the Canadian broadcasting system.³¹

Several witnesses also observed that grey market dealers operate overtly, offering no attempt to cloak their activities:

Retailers now openly sell pirate devices for stealing U.S. DBS programming. They cloak themselves with legitimacy by dishonestly using trademarks similar to DIRECTV and EchoStar. Consumers often don't know the service is illegal. Sometimes the price is so low that it's too compelling to pass up.³²

And:

In a recent newspaper article, a Fredericton marketing analyst estimated that there are 3,000 grey-market TV satellites, not to mention black-market ones, in the capital region alone. It represents close to 10% of the homes in Fredericton. It's no longer a whispered secret in Moncton, Bathurst, and other markets. People talk openly and freely of black-market satellite availability.³³

The Cost of the Black and Grey Markets

The estimated cost of the black and grey markets in Canada is significant:

The presence of this second, unlicensed broadcasting industry in Canada has a material negative effect on the licensed Canadian broadcasting industry. Its market share equates to about $325 million in lost annual revenues for Canadian BDUs alone, or broadcasting distribution undertakings. In 600,000 households, there is now little or no exposure to Canadian programming. No CBC. No TQS. No TSN.

Canadian programmers lose subscriber fees and advertising revenues. Canadian production funds lose $16 million annually in direct contributions from BDUs, as well as other funding from programmers. As producers lose funding, they lose follow-on international revenue, and artists lose opportunities. In short, Canadians lose jobs.

To restate it, unlicensed competitors put at risk the employment base of our industry and the billions of dollars of investment in infrastructure and programming by our industry; and last, but not least, they completely undermine the policy foundation of our broadcasting industry.³⁴

And:

Other broadcasters, satellite retailers, film and television producers, writers, actors, composers, and everyone else whose Canadian jobs are jeopardized by the theft of satellite signals, believe unauthorized systems, whether black or grey, must not be allowed to operate in Canada.³⁵

This point was repeatedly made by other industry witnesses:

Mr. Chairman, the entire Canadian broadcasting system is feeling the impact of the black market as satellite dealers are enticing customers with technology that allows them to beat the system. This means, in the end, more and more revenues are being siphoned away from Canadian artists, technicians, producers, broadcasters, and distributors.

Industry research has demonstrated that black market satellite services could cost the Canadian broadcasting system as much as $400 million or more each year. Those are dollars that could be going into strong programming, creating jobs for Canadian men and women in every part of this country.

This is not a small or insignificant problem. Our research shows the black market is comparable in size to Canada's second legitimate satellite company. To put it another way, it is equivalent to the Atlantic provinces simply dropping out of the Canadian broadcasting system altogether.³⁶

And:

As was noted in the last year, black market satellite services have grown to estimates of between 500,000 and 600,000 customers. Let's be clear; these black market operations are stealing Canadian customers with something very compelling — free service. This affects creators, broadcasters, rights holders, and distributors, as we lose those customers to a competitor that we can't see or compete with. We need government and industry action now to fix this situation.³⁷

The Current Legal Status of Grey Market Satellite Systems

On 26 April 2002, the Supreme Court of Canada held that grey market satellite reception in Canada is illegal.³⁸ Specifically, the Court held that section 9 of the Radiocommunication Act prohibits the decoding of all encrypted satellite signals, with a limited exception. It based this decision on principles of statutory interpretation and an examination of the language used by Parliament in creating the provision, together with a view to the overall objectives and regulatory regime for broadcasting in Canada.

The Court held that the Radiocommunication Act forbids the activity of decoding an encrypted subscription signal, and thus the prohibition "is directed towards the reception side of the broadcasting equation."³⁹ This prohibition captures the decoding of any encrypted signal, subject to the exception that the person receiving the signal has received authorization from the lawful distributor. Here the Court is quite clear in stating that "if no lawful distributor exists to grant such authorization, the general prohibition must remain in effect."⁴⁰ The only parties with the lawful right to distribute the signals in Canada — and thus grant authorization — are those licenced by the CRTC to do so: Bell ExpressVu or Star Choice. Therefore, reception of satellite signals emanating from U.S. broadcasters to Canadian residents through grey market systems is against the law in Canada.

In further support of this view that section 9(1)(c) of the Act creates an absolute prohibition against decoding, followed by a limited exception, the Supreme Court looked to the broader context of the overall regulatory regimes of telecommunications and broadcasting in Canada. It stated that the Radiocommunication Act and the Broadcasting Act operate in tandem as part of a single regulatory scheme. The Broadcasting Act, the Court said, evinces a clear cultural orientation. As such, the wording of the Radiocommunication Act, when read in the context of the objectives of Broadcasting Act, furthers broadcasting policy objectives by encouraging broadcasters to comply with the regulatory process before they could grant authorization to have their signals decoded and collect subscription fees: why, asked the court, "would Parliament provide for Canadian ownership, Canadian production, Canadian content in its broadcasting and then simply leave the door open for unregulated, foreign broadcasting to come in and sweep it aside? What purpose would have been served?"⁴¹

Lastly, this particular interpretation provides protection to the holders of copyright and complements the scheme of the Copyright Act. An absolute prohibition against decoding except where authorization is granted by the person with the lawful right to transmit and authorize decoding of the signal extends protection to the holders of copyright in the program itself, since it would prohibit the unauthorized reception of signals that violate copyright.

Implications

One of the major concerns as a result of this decision was a fear that the several hundred thousand Canadians who own grey market satellite systems would be vulnerable to criminal charges because they were in breach of the Radiocommunication Act. It is worth remembering that these systems were legitimately purchased and all U.S. subscription fees paid in full. Given that the Act provides for criminal sanctions of imprisonment and onerous fines for every person found to be in violation of the statute, many were afraid that they could expect a knock on their door and a visit from the police and that their satellite equipment would be confiscated. Indeed, this line of argument was pursued by counsel on behalf of grey market satellite system vendors at the Supreme Court hearing of this appeal.

The Court, however, was not convinced that that particular scenario would in fact occur. The language used by the Court here is instructive, and it is helpful to set it out and examine it in full.

The Court first stated, "I am not, however, persuaded that this plays an important role in the interpretive process here."⁴² In other words, the Court felt that this is an issue tangential to the legal substance of this appeal, which focused narrowly on how to properly interpret the wording of section 9(1)(c). The Court then went on to say:

In any event, I do not think it correct to insinuate that the decision in this appeal will have the effect of automatically branding every Canadian resident who subscribes to and pays for U.S. DTH broadcasting services as a criminal. The penal offence in s. 10(1)(b) requires that circumstances "give rise to a reasonable inference that the equipment, device or component has been used, or is or was intended to be used, for the purpose of contravening section 9" (emphasis in original), and allows for a "lawful excuse" defence. Section 10(2.5) further provides that "[n]o person shall be convicted of an offence under paragraph 9(1)(c) ... if the person exercised all due diligence to prevent the commission of the offence".⁴³

Put another way, prior to this decision, the legality of ownership and use of grey market satellite systems was in question — which is why the issue made it to the Supreme Court of Canada — and you cannot criminalize activity that is not clearly criminal. As there were some legitimate reservations as to whether this activity was in breach of the law, it would be impossible to say that those who acted prior to the date of this decision (26 April 2002) were obtaining or using the systems for the purpose of contravening section 9 of the Radiocommunication Act. If you did not know the equipment was clearly illegal, there would be no intent to use the equipment for the purpose of violating the Act. This line of argument fails as of the date of the ruling, as the law on this is now clear.

Finally on this issue, the Court concluded by stating that "[s]ince it is neither necessary nor appropriate to pursue the meaning of these provisions absent the proper factual context, I refrain from doing so."⁴⁴ This means that as this appeal focused very narrowly on a statutory interpretation issue, the criminal law liability and sanctions aspects of the legislation will be left to another time when the facts and context of the case raise them directly.

A further aspect of this criminalization issue is whom can be captured by it: grey market system vendors or owners? According to the wording of the Radiocommunication Act, both. Sections 10(1)(b) and 10(2.1) create summary conviction offences for every person providing equipment for the purposes of contravening s. 9 [vendors] and for every person who in fact contravenes s. 9(1)(c) [owners/users of decoding devices] [emphasis added]. Again, though, given the cautionary language of the Court with respect to the effects of this decision, it would appear unlikely that action would be taken against owners.

However, vendors may be another matter. Canadian satellite signal distributors and others have consistently maintained that they seek action against the vendors rather than the end users. For example, Mr. David McLennan, President and Chief Executive Officer of Bell ExpressVu, told the Committee that:

With respect to where we should be focusing our efforts on the black market and grey market, that starts with enforcing it at the level at which this product is being sold. We need to up the temperature on satellite dealers and retailers who are advertising and selling this product. That's where it starts. If I can go back to the ... Supreme Court decision, I think that's just an important catalyst to being able to turn the temperature up on the law enforcement side.⁴⁵

Ms. Janet Yale, President and Chief Executive Officer, Canadian Cable Television Association, echoed this view:

You're absolutely right; this is a very difficult public relations battle to win, and one of the reasons why we don't say that the solution is to charge individuals who have bought the dishes. If there is advertising in the newspaper that says to come and buy this dish, and buy these cards, people naturally assume that if it weren't appropriate to buy them, they wouldn't be available for sale. So our answer is not to punish the consumers who are buying these cards but to go after the dealers who are selling them.

Second, we try to educate the public on the fact that this is theft, pure and simple — theft. It's no different from stealing something out of a store, because the people who have created this product are not being compensated. So we almost have to create victims of this crime and point out to people that there are real victims, Canadian artists and creators, which means jobs in Canada, if not yesterday then certainly tomorrow.⁴⁶

A Globe and Mail newspaper article the morning after the decision stated that:

The broadcasting industry, government and RCMP alike say they'll be targeting commercial vendors of decoders rather than individual owners of satellite dishes or subscribers to U.S. satellite services. 'Our primary focus is the dealers. It's not our intention to root around trying to find subscriber lists', said Ian Gavanagh, vice-president of Bell ExpressVu.⁴⁷

This position was repeated by RCMP media relations officer Corporal Benoit Desjardins. He stated that "the RCMP continue to investigate the grey market with a focus on persons or companies operating illegally on a commercial scale."⁴⁸ This focus on dealer activity rather than individual satellite dish owners has been consistently followed by law enforcement and Canadian satellite industry officials in the months after the Supreme Court of Canada decision.⁴⁹

E. The "Reverse Grey Market"

It is important to note that a "reverse grey market" exists, albeit to a much smaller extent, in the importation of Canadian satellite signals to the United States. Canadian television signals are typically sought by Canadians who live in the United States and wish to receive Canadian television broadcasts that are not provided by American broadcasters. The CBC's Hockey Night in Canada is a good example.

However, just as it is illegal to receive unlicenced American satellite signals at Canadian addresses, in the United States it is illegal to receive unlicenced Canadian satellite signals at American addresses. Under current U.S. FCC licencing, no Canadian satellite signal provider is permitted to broadcast signals to the United States. Nevertheless, the desire to receive Canadian broadcasting in the United States has given rise to the so-called "reverse grey market." This works in much the same way as does the Canadian grey market in U.S. satellite signals. The Committee heard of a Web site that apparently facilitates access and connection to Canadian satellite services from the United States:

It's called "The Canadian Solution: An economical way of providing a vast improvement in the quality and quantity of TV & radio signals to your home". This is on a site from Plain, Wisconsin. It says "Lower your satellite programming costs!", "Restore CBC Radio & TV Reception!!", and so on. On that website are Bell ExpressVu, Star Choice, and so on.⁵⁰

A 1-800 telephone number is then provided for potential users of this service.

The use of a 1-800 number is significant. Legal subscribers to legal satellite services in Canada call a 1-800 telephone number in order to activate the service. The 1-800 number is intended to be accessible only from inside Canada, but the Committee heard that this barrier is easily defeated by a simple call forwarding system. Potential reverse grey market users call a different 1-800 number — based in Canada but accessible from all over North America — first, and that call is then forwarded from a Canadian location to the Canada-only accessible number.⁵¹ This bypasses the geographic constraint placed by the limitation of the telephone number to Canada only. Canadian reverse grey market subscribers then pay for their Canadian satellite service with a Canadian-bank issued credit card, thereby creating the appearance that the service is being delivered within Canada.

When presented with evidence of this practice, Canadian satellite signal providers denied knowledge of either the Web site promoting access to Canadian satellite signals in the United States or the call-forwarding signal activation service. Mr. David McLennan, President and Chief Executive Officer of Bell ExpressVu, explicitly stated that "we are not authorized to deliver our signal to the United States" and "we will not knowingly deliver service to a system in the United States."⁵² Of the Web site and call forwarding system, Mr. McLennan said, "I'm not aware of that. That's not an ExpressVu initiative by any means."⁵³ He further stated that just as Bell ExpressVu has been vigorously pressing for the detection and prosecution of grey market satellite services in Canada, his company has been "the most aggressive party in Canada in pursuing this [reverse grey market]".⁵⁴

One Committee member felt that further evidence of Bell ExpressVu's commitment to ending all grey market activity would be useful:

I would just suggest something on my own behalf and perhaps on the behalf of other members of the committee. If I could be convinced, perhaps in a further submission, of the aggressive steps Bell ExpressVu is taking to stop the reverse grey market — that you are going after the Canadian snowbirds and people like this one on the Internet, that you are taking the necessary, simple, technological action that I've suggested to you this morning — perhaps I would feel more inclined to say, yes, we should do something.

I'm just of the impression — perhaps it's a bad impression — that the DTH marketers in Canada are talking about and asking for action on the grey and black markets in Canada, but that, because of the very large footprint that you have with your satellite signal, the DTH providers in Canada are not really serious in turn about stopping the revenue sources from the reverse grey market.⁵⁵

Bell ExpressVu responded to this with a letter addressed to the Committee Chair repeating their policy that the company will not knowingly allow a person to receive their services outside of Canada.⁵⁶ The letter also outlined the various steps Bell ExpressVu has taken to ensure Canadian satellite signals are only delivered to Canadian addresses. These measures include employee training, service contracts and equipment sales agreements prohibiting receipt of their signals or use of equipment outside Canada, inventory management and tracking and enforcement activities.⁵⁷

F. The Alleged "Blue Market" Satellite Issue

In addition to the better-known black and grey markets in satellite equipment and signals, it has been suggested that a third, "blue" market exists in the sale of illegal equipment with which to view illegally obtained signals. This market allegedly arose in response to the April 2002 Supreme Court of Canada decision making it illegal in Canada to sell decoding equipment allowing access to unlicenced U.S. satellite services such as DirecTV and EchoStar.

Until that decision, the legality of selling equipment and access to these U.S. services was in question, and some satellite system vendors and purchasers in Canada engaged in this so-called grey market. Purchasers seeking access to U.S. satellite services could purchase the necessary reception equipment — commonly a satellite dish and set-top box that connects to the viewer's television set — and then arrange and pay for the delivery of U.S. satellite signals to that equipment. This was normally facilitated by the vendor, who would supply the U.S. satellite signal distributors with a false U.S. mailing address to give the appearance that the U.S. satellite signals were being delivered to a U.S. address in accordance with U.S. law. In fact the signals were being delivered to a Canadian address and thus these particular Canadian consumers were receiving satellite signals from a distributor that was not licenced to provide that service in Canada. The decision of the Supreme Court of Canada rendered this practice undeniably illegal.

After this decision, those Canadians who had subscribed to U.S. satellite services now found themselves burdened with illegal equipment that can only receive U.S. satellite signals. Bell ExpressVu, which is one of the two undertakings licenced to provide satellite signals in Canada, offered an amnesty program in which this illegal equipment could be turned in to Bell ExpressVu and exchanged for Bell ExpressVu's legal and licenced equipment and service. What became of that now-illegal grey market equipment has been the subject of some curiosity.

It has been alleged that Bell then "sold the equipment, thousands of units, at $5 a piece, to a small Ontario company called Continental Components".⁵⁸ Continental Components in turn sold the equipment — which can only receive U.S. satellite signals and not Canadian satellite signals — back to Canadian consumers. This became known as the "blue" market — so-called in reference to Bell's corporate colour. Bell ExpressVu vehemently denied these allegations. John Sheridan, President and Chief Operating Officer of Bell Canada, which is the owner of the ExpressVu satellite service said, "[To] say that problems within the industry with piracy and signal theft in Canada relates to ExpressVu [is] nonsense."⁵⁹

Mr. Sheridan, however, did acknowledge that piracy and signal theft remain problematic in Canada. The theft of U.S. signals, he said, is a "real issue" because a growing number of people are using hacked satellite cards and illegal technology to avoid Canadian suppliers.⁶⁰ He further added that ExpressVu is trying to use technical means to combat the theft of its signals. Mr. Timothy MGee, President of Bell ExpressVu, echoed Mr. Sheridan's denial of Bell ExpressVu's involvement in the theft of U.S. signals and further emphasized the need for a "coordinated industry wide response"⁶¹ to this theft. "We are also doing everything we can to grind down, internally, any of the issues that could give rise to the theft of our own services. It's in our interest to do so. Any suggestion to the contrary is simply wrong," he stated.⁶²

G. Future Challenges

The Committee fully supports measures by the appropriate authorities to enforce compliance with Canadian law, which prohibits the reception of unauthorized satellite signals and the theft of satellite signals.

That said, the Committee is well aware that while the decision establishing the illegality of the grey market in Canada has settled one issue, it has left open several others. Certainly grey market system vendors do not view the Supreme Court decision as definitive. Indeed, while that particular aspect of the Supreme Court decision cannot be appealed, days after the decision lawyers representing 17 small grey-market satellite television system vendors won a seven day injunction delaying Crown enforcement of the ruling until a constitutional challenge can be heard. They appeared again in the Ontario Superior Court, seeking to extend the injunction. The Ontario Superior Court declined, stating that the dealers had failed to provide evidence that they will suffer irreparable harm in the event that the injunction was not extended. That 10 May 2002 ruling cleared the way for Industry Canada and the RCMP to begin enforcing the Supreme Court of Canada decision.

Probably the more significant future question is the inevitable Charter challenge to the prohibition against decoding foreign broadcasting signals. The Supreme Court of Canada essentially invited the issue to return to it, stating:

It may well be that, when this matter returns to trial, the respondents' counsel will make an application to have s. 9(1)(c) of the Radiocommunication Act declared unconstitutional for violating the Charter. At that time, it will be necessary to consider evidence regarding whose expressive rights are engaged, whether these rights are violated by s. 9(1)(c), and, if they are, whether they are justified under s. 1.⁶³

Such an appeal is presently before the courts. A group of grey-market system distributors has filed an application in the Ontario Superior Court of Justice seeking a declaration that those provisions of the Radiocommunication Act prohibiting reception of unlicenced U.S. satellite signals are contrary to the guarantee of freedom of expression as set out in section 2(b) of the Canadian Charter of Rights and Freedoms.⁶⁴ This hearing will directly pit freedom of expression values against Canadian broadcasting policies and objectives. This will necessitate a balancing of interests between the freedom to watch the television programming of one's choice versus broadcasting policies and regulatory schemes designed to maintain and enhance national identity and cultural sovereignty. It is likely to take some time for this issue to wend its way through the various levels of hearings and appeals before arriving back before the Supreme Court of Canada for resolution.

All this being said, the Committee also realizes that greater access to international programming is likely the primary reason why so many Canadians have elected to subscribe to foreign satellite televisions services. As Professor Will Straw told the Committee:

When people, through grey-market satellites or through cable, watch the news on the BBC, watch old Indian films from Bollywood, to me that's strengthening Canadian culture just as importantly as it is if they're watching Heritage Minutes. ... They're thinking of themselves globally, in a way that we need to start thinking about ourselves in Canada. ... I think we have to find a way of opening ourselves up to more kinds of programming from different parts of the world. Over time, that is going to diminish the strength and the dominance of American programming.⁶⁵

With this in mind:

Indeed, it is the Committee's view that with a greater range of international programming choices, most citizens who have opted out of Canada's broadcasting system would be repatriated. In parallel, the revenues of Canada's cable and satellite service providers would increase, as would their required contributions to the Canadian Television Fund, and, by extension, the total sum of available funds for the creation of new Canadian television programming.

Endnotes