05/10/2013 09:40 EDT | Updated 07/10/2013 05:12 EDT

Bell says its needs Astral to compete with online TV and movie service Netflix

MONTREAL - Bell will drop its offer to buy Astral Media if it is forced to sell more of the company's assets like The Movie Network because it would cripple its attempts to compete with services like Netflix, CEO George Cope said Friday.

Bell would also walk away from the deal if forced by the CRTC to sell more of Astral's French specialty TV channels because it wants to bring more competition to Quebec, Cope told the CRTC.

"If we were to be asked to divest any more of the channels or content, we would not move forward with the transaction," he said told a regulatory hearing reviewing its proposed deal to buy Astral (TSX:ACM.A)

Bell made its final pitch Friday to convince the Canadian Radio-television and Telecommunications Commission to approve the deal it killed last fall because it determined it was not in the best interest of Canadians.

Cope said the "strategic rationale" to buy Astral wouldn't be there if it had to sell more of its assets to obtain the OK from the broadcast regulator.

Bell's parent company BCE Inc. has said it wants to buy Astral to put its content across traditional TV, computers, smartphones and tablets. Astral's English pay TV service, the Movie Network, and French-language pay TV service Super Ecran, would be key providers of shows and movies.

"My leadership's strategic purpose is to make sure we're ready to compete with what's happening in the market going forward," Cope said.

Online streaming service Netflix has more than one million paying customers in Canada for its offering of television shows and movies and Youtube launched its pay channels this week.

Cope also said he wants to bring more competition to Quebec, where Bell wants to compete with dominant Quebecor (TSX:QBR.B) for TV, Internet, home phone and mobile phone customers.

"Divesting more on the French side defeats the purpose of the French-language strategy," he said.

Cable and wireless provider Rogers Communications (TSX:RCI.B) has asked the CRTC to make Bell sell the Movie Network as a condition of the $3.4-billion deal. Rogers has said it would then take a look at buying The Movie Network itself.

Astral CEO Ian Greenberg said the consequences for his company would be severe if the CRTC doesn't approve the deal the second time round.

He noted Astral is a family owned company and there are four families involved in its sale.

Greenberg said would have to consider other options for a sale and added a second denial could cause problems for Astral to keep its top employees and with its customer relationships.

"We have to remember for the last 15 months our employees and the business have had to cope with the distraction and the uncertainty associated with the sale of a company," he said.

"Obviously what this would do is extend the uncertainty for our people and our business for at least another year and I think that would be a disservice to the industry and a disservice to our employees and to our shareholders. So, it would be quite severe."

The revised proposal by Bell (TSX:BCE) to buy Astral would, among other things, see Bell sell all of Astral's English language specialty services and one of its English pay TV services. However, it would keep eight of Astral's channels including the pay TV service, The Movie Network.

Cope said Bell has agreed to sell six of Astral's French language specialty services — more than half.

The CRTC heard from telecom and cable companies such as Rogers, Telus (TSX:T), Cogeco Cable (TSX:CCA) and Eastlink that they were worried about getting deals for content on digital platforms if the Bell-Astral deal went head.

However, Bell's chief regulatory officer Mirko Bibic said there are ways to solve disputes over contract negotiations.

"Potentially Bell Media would be subject to filing for final offer arbitration six months in advance of expiry of a contract with a distributor if we were not able to negotiate commercially before that time," Bibic said after the hearing ended.