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Shaw Expands Into Canadian Signal Distribution

Canada's Shaw Communications Inc. is making a bid to
control its competition by selling its direct-to-home service to its rival and becoming
its largest shareholder.

That's the strategy being pursued by Shaw Communications in
its bid to control Canadian Satellite Communications (Cancom), the primary distributor of
TV signals via satellite to Canada's cable operators.

Shaw Communications earlier this month said it would sell
its Star Choice DTH consumer service -- which recently began selling signals to cable
operators -- to Cancom through a $C77.7 million (US$51.8 million) share-swap.

The swap won't be equal: For every share that it gives Star
Choice, Cancom will receive 4.8 shares in return. The deal requires the approval of the
Canadian Radio-television and Telecommunications Commission (CRTC).

If this deal goes through, Shaw Communications will be the
largest shareholder in Cancom, company president and chief operating officer Jim Shaw Jr.
said. That's because the stock-swap will dilute Shaw Communications-owned Western
International Communications' current 54 percent stake in Cancom to 27 percent, he said.
Shaw Communications will directly hold "about 30 percent," he added.

Ironically, this maneuver shouldn't be necessary for Shaw
Communications: The MSO recently bought WIC through a deal that is also awaiting CRTC
approval. If this also goes through, "our ownership [of Cancom] goes up even
higher," Shaw said. With about 60 percent ownership of Cancom, Calgary, Alberta-based
Shaw Communications would have undisputed control over the company.

The latest deal gives Shaw Communications a fallback
position if the CRTC turns down its acquisition of WIC. By acquiring WIC, Shaw
Communications will receive three cable channels (all of them pay-movie services) and
stakes in another five services.

However, the CRTC might balk at this, because Shaw
Communications already owns pay TV networks YTV, Treehouse TV and Country Music Television
Canada, plus 11 radio stations. In Canada -- a market that's only one-tenth the size of
the United States -- the government frowns on concentrated media ownership because it sees
large companies as one step removed from being monopolies.

Shaw is aware of this fear. That's why Shaw Communications
recently sought -- and won -- CRTC permission to spin off its programming assets into a
separate company called Mediaco.

Shaw acknowledged that Mediaco was a sop to the CRTC and to
his competitors.

"A lot of people were saying that Shaw
[Communications] was starting to use its cable weight to manipulate its programming
side," he said. "And we said, 'OK, why don't we just separate them then? That
will take any possible look of collusion and move it off to the edge.'"

Still, the recent Cancom-Star Choice share-swap suggested
that Shaw isn't sure if the WIC deal will go through, which begs the question: Why is Shaw
Communications so obsessed with controlling Cancom?

The answer is competition. Currently, Cancom and Star
Choice are the only companies distributing TV signals to Canadian cable operators.
However, the CRTC is now entertaining applications from other companies.

Some people are lobbying for low-priced U.S. satellite
companies to get into the distribution game, Shaw said. Bell Canada's DTH company,
Expressvu, has also applied for a license to distribute signals to cable headends.

This stands as a threat to Shaw Communications, especially
because Shaw described the firm as "mainly a strong distribution company." Given
that description, it's no wonder that he intends to consolidate his position, one way or
the other.