Cable telephony may be feasible, but it may not necessarily be profitable, according to a new study. The most recent report by the Yankee Group examined the efficacy of cablecos providing wireline service and raises several red flags. The analysts compared industry expectations with consumer demand. They found a wide chasm between the two positions."The Yankee Group’s 2001 Canadian Technologically Advanced Family (CTAF) survey shows that only 10% of households show interest in subscribing to local and long-distance services from a cable or satellite operator," the report states. Data indicated that customers were unlikely to switch providers if there was no demonstrable difference in price. If discounts of 10% to 15% were available, 35% of respondents said they would consider migrating. "Even if cable companies were to begin rolling out such bundled services, convincing customers to subscribe only to the cable companies’ offering might prove difficult," the study continues. "Sixty-nine per cent of CTAF respondents claim they are most likely to subscribe to a bundle from their current phone company, while only 24% would choose their cable provider." Report co-author Jeremy Depow tells Network Letter there is a disconnect between what cablecos are hopeful of achieving and the desire for the service from the general public. "I think consumers don’t quite understand it yet or even perhaps know that it’s possible," he notes. "I think from the industry’s point of view ‘we’re already in 80% or 90% of Canadian households, let’s offer this service.’ But there’s quite a difference between cable telephony and traditional telephony." Cable companies have regarded local service as a great source of revenue and as a way to staunch the encroachment of satellite and telephone firms into cable’s traditional territory. But the path to telephony has been difficult. In 2001, Cogeco Inc. was forced to take a writedown of nearly $30 million on its IP telephony pilot project (NL, Nov. 6/01). Rogers Cable Inc. alternately promotes and then backs away from plans to provide voice service. The Yankee Group thinks there are several factors that work against cablecos. One is customer satisfaction. "Cablecos get consistently lower marks for customer service, value, and overall loyalty," the report offers. "Lukewarm consumer opinion stems largely from the negative media attention given to the cable providers’ frequent cable and high-speed Internet outages." Depow says the adverse reaction differs depending on which company provides the cable service. EastLink Cable Systems has been very successful in rolling out its cable/telephony bundles in Nova Scotia and P.E.I. Larger firms like Shaw Cablesystems and Vidéotron ltée have greater difficulty with public opinion, according to the survey. Depow has no doubt which cableco has the hardest struggle to win support. "I think Rogers has kind of a brand problem when it comes to the consumer activity, especially with the @Home problems and that kind of stuff," he states, referring to the confusion caused when the Ontario-based cableco had to switch its Internet service (NL, Dec. 5/01). The telecom analyst also notes that companies are having difficulty raising funding in general. The cost of telephony infrastructure is high and lenders may be reluctant to increase cablecos’ debt loads to move into the field. "And the market itself, it’s not a lot of yield given the low prices," Depow cautions. "It’s a business model they have to look at very carefully." The Yankee Group study reports that, unlike telcos, cable firms have not invested in back-up power at the end-user site. To deploy such back-up will require a heavy financial investment. While companies may not want to spend that kind of cash, they will have to if they are to provide service equivalent to the telcos. "If the cablecos cannot ensure that phones will still be active during a power failure, subscribers will not see cable telephony as reliable as their current service," the survey says. "For cable companies to succeed in the telephony business, they will have to exhibit reliable service for their customers and improve their reputation over time." That finding leads to concerns about quality of service (QoS). The coax cable was originally intended to carry signals in one direction only. Telephony service requires upgrading to two-way hybrid fibre/coax grids. Switching equipment must be at the headend and the customer location. Cablecos have to send installers to the client to initiate service, thus driving up costs more. All of this comes as telcos and their subsidiaries are making greater inroads into the cable companies’ traditional market. Figures contained in the Yankee Group survey show the four largest cablecos are losing market share to satellite firms. The largest satellite carrier is Bell ExpressVu LP, a division of telecom giant BCE Inc. In addition, traditional telcos are gingerly approaching the broadcasting market. Manitoba Telecom Services Inc. is offering digital television service to Winnipeg customers (NL, Feb. 11/02), and SaskTel is offering digital TV service in several communities in Saskatchewan. A subsidiary of Telus Corp. has applied to the CRTC for a licence to provide digital television service in several Alberta and B.C. communities. Aliant Telecom Inc. dropped its TV-over-copper service VibeVision last summer in favour of offering Bell ExpressVu’s service to customers (NL Update, June 24/02). But it recently filed an application with the CRTC for a licence to continue its TV-on-my-PC retransmission service. For more details on SaskTel’s service, see the Sept. 26/02 edition of Canadian Communications Reports. More information on the Telus application can be found in the Sept. 26/02 edition of Canadian Communications Reports. More details on the Aliant retransmission application can be found in the Jan. 23/03 edition of Canadian NEW MEDIA.