The bundling of telephony, television and Internet services continues to be the primary marketing strategy of cable companies and telephone companies across North America to win over subscribers. While there are fundamental differences between the U.S. and Canadian markets, cablecos and telcos on both sides of the border continue to battle vigorously for ownership of the digital home. The following is an edited excerpt of a commentary prefacing The Battle for the North American Couch Potato: Bundling, Internet, TV, Telephone, a report from The Convergence Consulting Group Ltd.  Predictions for the Canadian market By YE2007 we forecast cablecos will have 16% (70% of this will be VoIP) of residential telephone subscribers and by YE2009 27% (up from 6.5% YE2005). Whereas we forecast telcos will have 4% of TV subscribers by YE2007 and 9% by YE2009 (up from 1% YE2005). Canadian cablecos have on average 45% of their TV customers taking Internet with them, whereas the telcos have on average 23% of their residential telephone customerrs taking DSL with them. Hence cable adding a significant amount of telephone customers in a short time is highly achievable given the high overlap, bundled price and convenience.  Cable VoIP with its multiple features and unlimited LD currently has the price edge against the telcos’ traditional phone offers, and is typically the key price differentiator in the cable versus the telco triple play bundle. Telcos (Bell has been the most aggressive with its new VoIP offers, SaskTel has cut LD, etc.) have started to answer back with new offers and price changes – we expect this to only intensify with both telcos as well as cablecos altering their plans/prices going forward.  MTS and SaskTel are holding their own with their telco TV offers (due to their early entrance and pricing strategy) and are spending further on their networks to offer HD. Aliant and Bell are also getting into the telco TV game. Telus has delayed entrance due to the strike. We are uncertain as to whether Bell’s (like BellSouth and SBC in the United States) current capex commitment to network upgrades will be enough to satisfy the capacity needs of offering multiple HD streams.  (Bell) ExpressVu subscriber additions have seen an uptick in 2005 (gains were quite moderate from 2002-2004) due to lower set-top box prices, reduction of privacy, reformulation of packages/prices and promotions. We are not forecasting as rosy a 2006 for ExpressVu as we believe Bell will start its IPTV push in the second half of 2006 and put more onus on gaining telco TV subscribers than satellite subscribers. StarChoice subscriber additions continue to be poor. In contrast to the U.S., Canadian satellite subscriber gains have tended to be quite moderate due to TV prices roughly being at parity with cable and a less aggressive approach to supplementing DVR boxes. Cable gained basic TV subscribers in 2004, the first time in years, and basis looks to be flat for 2005 and just slightly negative for 2006 (we expect basic losses 2007-2008 due to telco TV). Digital cable subscriber additions will continue to accelerate (digital cable subscribers will outnumber satellite before YE2005). Cable continues to maintain its market share lead in residential broadband subscribers (cable has 55% and telco 44% respectively) due in part to cable’s speed for the price advantage (cable’s discount triple/quadruple play is also helping). We expect that cable will continue its strategy of raising speeds. We forecast cable will addd slightly more residential broadband subscribers 2006-2007. By YE2005, we forecast dial-up will represent 25% of households online.  Predictions for the U.S. market We forecast cablecos will have 12% of residential telephone subscribers by YE2007 and 21% by YE2009 (up from about 5% YE2005. Whereas we forecast RBOCs/telcos will have 2% of TV subscribers by YE2007 and 5% by YE2009.  The top nine cablecos have on average 40% of their TV customers taking Internet with them, whereas the RBOCs have on average 15% of their residential telephone customers taking DSL/fibre Internet access with them. Hence cable adding a significant amount of telephone customers in a short time is highly achievable given the high overlap, bundled price and convenience. Cable VoIP with its multiple features and unlimited LD currently has the price edge against RBOCs’ traditional phone offers.  Despite BellSouth, SBC and Verizon’s foray into TV, we see a continuing role for RBOC-satellite alliances given current RBOC coverage plans out to 2009 equate to less than half of TV subscribers. We are uncertain as to whether BellSouth and SBC’s current capex commitments to network upgrades will be enough to satisfy needs of offering multiple HD streams, and although we are impressed by Verizon’s fibre approach we are concerned about its limited coverage area. Due to price rises, focus on churn, increased competition from cable, DirectTV/EchoStar are seeing less subscribers added than 2004, and we expect this declining trend to continue given the entrance of RBOC TV players. That being said, we expect satellite will gain a small amount of TV subscriber market share 2005-2006, and sustain market share 2007-2009.  We forecast less basic cable TV subscribers lost and more digital subscribers gained per annum 2005-2007 than 2004, due to aggressively priced triple play bundles including faster broadband speeds, the consolidation of the cable industry, and the riseof VOD, SVOD, local HD, DVRs (we project cable and satellite will have a similar amount of DVRs in service by YE2006).  Even with RBOCs raising residential broadband speeds (due to network investments), we forecast cable will continue to add per annum more residential broadband subscribers than RBOC/telcos until the end of the decade, and retain dominant share into the next decade. Residential cable Internet subscriber additions continue to outpace residential RBOC/telco additions as cable (we expect cable will continue its strategy of raising speeds) in most instances offers more speed for the price than RBOCs/telcos, cable’s increase in share of the telephone market (and RBOC/telcos’ loss), and because there is still so much dial left to cannibalize (YE2005 residential broadband subscribers will finally exceed residential dial-up subscribers). YE2007 we forecast cable will have 59% & RBOC/telco 40% of residential high-speed Internet subscribers from 62% & 37% respectively YE2005.