By Alastair Sharp
TORONTO (Reuters) - Canada's telecommunications regulator should ease restrictions on domestic television providers because of the competitive threat they face from online services like Netflix Inc, Quebecor Inc Chief Executive Pierre Dion told a hearing on Tuesday
Left unregulated, he said Netflix will become the largest distributor of video content in Canada, leaving domestic broadcasters struggling to compete.
Pleas by Canadian cable and satellite television providers like Quebecor for greater flexibility are likely to be a recurring theme in an inquiry by the Canadian Radio-television and Telecommunications Commission (CRTC) into the state of television in Canada.
As in the United States, online television distributors have shaken up the Canadian industry by meeting viewers' demand for greater freedom than traditional subscription TV services can offer.
"The commission should regulate neither the composition of basic service, nor its price, nor package sizes if it really wants cable providers to offer consumers greater flexibility and choice," Dion told a CRTC hearing in Gatineau, Quebec.
Dion called the rules that govern domestic players a "regulatory straitjacket" that online-only services can ignore.
The CRTC inquiry aims to update existing rules that enforce a minimum level of financial support and air time for Canadian programs on traditional TV while ignoring online services such as Netflix and Google's YouTube.
The regulator has already said that whatever replaces them - conclusions will not be made until well into 2015 - should not protect specific channels or business models to the detriment of consumer choice.
But the question of whether the regulator needs to expand its reach to online outlets or reduce its grip on domestic companies is still up for debate. The hearings, which will run for two weeks, will include appearances by media and distribution company CEOs, unions and public advocacy groups.
The federal government is also looking for the CRTC to force distributors to offer smaller packages of channels, saying Canadian viewers should not be compelled to pay for channels they don't watch in order to get the channels they do want.
The implications may extend beyond Canada's borders. Any move away from the business model of bundling channels could help trigger similar changes in the much larger U.S. market.
Media companies warn that prices will inevitably rise if viewers can choose smaller packages or individual channels.
Telus Corp, which unlike its largest rivals has shied away from acquiring its own content, said it hopes the hearings will help rein in the restrictive terms and spiraling cost of sports and other programming it must buy.
BCE Inc Chief Executive George Cope, whose company is a major owner of media assets, said its position is that the same rules should apply to all.
(Additional reporting by Euan Rocha; Editing by Jeffrey Hodgson and Tom Brown)