Cable versus telco: who’s going to win battle for control of the digital home

With TELUS Corp. announcing the launch of its TV over DSL services earlier this month and Bell Canada preparing to do the same at some point in the future, the battle for control of the digital home is going to heat up. The cable operators have been taking it to the telcos for several months now since they introduced telephony services, but telcos are set to respond and will soon face off against cable companies on their own turf. "So who wins? Cable or telco?" John Henderson, telecom and cable equity analyst at Scotia Capital, asked at the recent Scotia Capital IPTV versus VoIP conference. Manitoba Telecom Services Inc. (MTS) and Saskatchewan Telecom-munications (SaskTel) have already entered the TV market in anticipation of cable’s entry into telephony. "They started early," said Henderson. "It was expensive, but…they’re well positioned in IPTV." TELUS announced during its third-quarter financial results conference call that it was launching its TELUS TV service in Edmonton and Calgary. The company said it would proceed on a neighbourhood-by-neighbourhood deployment strategy, starting first with TELUS employees and friends of employees. Bell already offers TV over DSL to a select number of apartment buildings in Toronto, Montreal and Ottawa, but has yet to make public its larger strategy for its wireline TV service. Last year, the company unveiled a plan to significantly expand its network in the Quebec City-Windsor corridor to be able to provide 26 Mbps to each household by 2008, giving Bell the ability to offer wireline TV service to 4.3 million households. Henderson noted in his opening remarks to the one-day conference, held on November 21, that cable companies currently have the lead. "On the surface, it clearly appears as if cable is going to win. The reach of VoIP is much greater over cable plant – it’s about 90% of their network or greater versus about 70% we expect with IPTV," he said. The financial metrics of VoIP also play into cable companies’ favour. "The cable margins on Voice over IP will be much greater than IPTV. You’ve got to bear content costs with IPTV," Henderson said. "In terms of the margins that are lost on the incremental business as the phone company loses a customer we think that’s about a 75% incremental margin that they are going to lose versus about 65% " But, Henderson noted, the telephone companies will make up some ground. "Cable is going to lose pricing power," he said. "Cable has a fairly high exposure to entry of IPTV with about 75% of a typical cable company’s revenue being represented by basic cable service." While cablecos and telcos appear set to battle for control of the digital home in the future, a Lucent Technologies Inc. executive explained that integrating or blending voice, video and data services and not bundling is the way to go forward. Bundling, said Rob Piconi, VP and GM of broadband solutions at Lucent, erodes value by giving end users a discount for spending more with a particular provider. One of the applications he highlighted lets users answer the telephone from the TV. The program would pause when the call is answered and then would resume following the termination of the call. "The service provider is going to be in a very good position with an all-IP network to offer this integration…of video, voice and data type services," Piconi said. Network Letter affiliate publication Canadian Communications Reports will have more on IPTV in an upcoming issue.

Cable versus telco: who’s going to win battle for control of the digital home

News | 11/23/2005 5:00 am EST

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