Cogeco departure signals slowdown in rollout of Internet Protocol telephony

The prophets of IP telephony as the wave of the future have been thrown for a loss by the retreat of a large cableco from the market. Cogeco Inc. announced last month that it was pulling out of its IP project, with a write-off of $29.3 million for the last quarter of this fiscal year. That’s a far cry from the situation two years ago when Internet Protocol technology was being heralded as the easiest way for cable firms to take on their telecom rivals. Delegates to a convention of the Canadian Cable Television Association were extolling the revenue that would roll in once IP technology was a standard feature (NL, May 31/99). Cogeco had already unveiled plans to offer telephony to its customers in Ontario and Quebec. But initial projections by all industry participants were far too optimistic. At the just-concluded price cap hearings of the CRTC, the VP business economics of Rogers Communications Inc. was cautious about the deployment of service. "Our expectation would be that we would begin to roll out an IP-based residential telephony service in commercial form, hopefully by late 2003," David Watt told commissioners. "The cable industry is particularly sensitive to making forecasts that it can’t meet. As you are probably aware, the cable industry has taken some criticism for the length of time it took it to roll out its digital video compression boxes, DVC boxes." Watt concedes the rollout has not gone as quickly as first thought. "It might be a move back from the original projections made several years ago when people thought the technology might unfold more rapidly in the days when Vidéotron and Cogeco were pursuing it vigorously," he tells Network Letter. "But certainly over the last year, it’s fair to say we’ve been in the late 2003 time frame." One of his colleagues is hopeful the needed expertise will arrive soon. The primary system is DOCSIS—Data Over Cable Service Interface Specifications. "The technology development plan is continuing," notes Alex Brock, Rogers’ VP business development. "Most of it is being done through the Cable Television Laboratories out in Denver. The PacketCable initiative, which is an overlay to DOCSIS, that plan is continuing to roll along very nicely. So the technology outlook for that is still continuing. The question is timing and economics." American tests set standard A DOCSIS 1.1 network with PacketCable extensions lets cable companies deliver data and voice traffic using a single high-speed QoS-enabled broadband architecture. Rogers sits on the certification boards CableLabs has set up to oversee DOCSIS and PacketCable. The Canadian firm is content to use the American tests rather than initiate research in this country. "But there are a number of trials that are going on in the U.S.," Brock notes. "The folks at Comcast are trialing packet cable. In the lab at the moment, we’ve a number of different vendors trying to see how the engineering and the economics work. The Cox folks are doing some trials as well and I believe the Charter folks have started some work too." CableLabs is a non-profit research consortium made up of cable providers from the western hemisphere. Besides Rogers, a number of Canadian companies are members, including Shaw Communications Inc. and Le Groupe Vidéotron ltée. Rogers was one of several cablecos that took part in a circuit switch trial in Trois Rivières QC in 1998. Along with Shaw, Cogeco and Vidéotron, the firm looked at voice-over coaxial cable."We found that while the technology worked well, after a while—remember this is back three years ago—our conclusion was that the cost of that technology made offering local telephony using it uneconomic for us," Watt told the CRTC. "So we have then turned our sights to IP technology." The Canadian cable operator most advanced in the provision of telephony is EastLink Cable Systems (NL, Sept. 27/99). Its EastLink Telephone subsidiary began offering service in Halifax two years ago and has since expanded into the Nova Scotia communities of Truro, Bridgewater, Lunenburg, Chester, and Mahone Bay and into Charlottetown PEI. It currently provides a voice-over coaxial cable offering, but is keeping an eye on Internet protocol. "We’re considering it as part of an ongoing keeping abreast of technology whether to use IP and when to use IP in the access part of the network," EastLink president David Caldwell tells Network Letter. "The decisions to use call servers to replace our DMS switch would be further down the road. It’s really just a cost and features situation. We need to see that the costs are lower on IP than on our current operation before we make that decision." It is not cost-effective to roll out IP at this time, he adds. "For now, it seems marginal. We’re optimistic as the volumes start to be built in the next year or two that may get better." EastLink is offering its customers a bundled package of cable television (either digital or analog channels), high-speed Internet, and multi-featured telephony starting at $99 per month. Officials at Cogeco refused to discuss their retreat from the IP market. That hasn’t stopped others from speculating about the reasoning behind the decision. "I think they took a look at the first generation of PacketCable and DOCSIS and looked at the economics of the first generation equipment and what it would cost to put those out there and decided that the timing wasn’t right, which is quite frankly the conclusion that we’d come to," Brock tells Network Letter. Watt adds that Cogeco president/CEO Louis Audet indicated to financial analysts last September that his company was unlikely to proceed with its IP trials. The team from Rogers hesitates when asked about its own appetite for residential telecom services. Last year Peter Ciceri was brought over from Compaq Canada Inc. ostensibly to establish a separate tele-phone company. "I think what you’re referring to there is Rogers hired a president of their telecom arm at that time," Watt says. "Essentially Peter Ciceri was asked to look at the prospect for telephony in a broad sense and he did that over a six-month period." Rogers’ VP of communications Jan Innes quickly jumps in. "He was brought in as a consultant. He did a project for us and has moved on." That is a far cry from the mood a year ago. A story in Maclean’s magazine (itself a Rogers property) described president/CEO Ted Rogers as "ready and eager to go head-to-head with his archrival, Jean Monty of BCE." Rogers Telecom would be moving into residential local and LD service over the existing cable grid. "The telephone business is absolutely essential for us to be involved in," the cable baron told his newsweekly. "If we are going to compete in the home with Bell, we have to offer everything Bell offers." The firm has abandoned the grand telephony scheme in favour of IP technology. Even with its scaled-back plans, the cableco is inching along with its proposal. Brock reports that Rogers has run a variety of models to establish the best pricing mechanism for IP. Difficulties arise because local telephony use is not measured and the costs of LD service fluctuate wildly. No final prototype of an Internet economic model has been determined.

Cogeco departure signals slowdown in rollout of Internet Protocol telephony

News | November 6, 2001

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