Cablecos’ share of telephony market continues to grow at steady pace

The share of the local telephony market owned by cable companies continues to increase at a steady pace, according to figures released by the country’s major players. Vidéotron ltée, Shaw Communications Inc., Cogeco Cable Inc. and Rogers Communications Inc. all released subscriber results in the past couple of weeks and they are all demonstrating healthy subscriber gains at this early stage of their service deployments (see table for subscriber figures). Quebec’s largest cable company Vidéotron is leading the way with approximately 163,000 subscribers. The cableco introduced its cable telephony service in the first quarter of 2005 and has steadily upped market share during a phased service rollout. Much of Vidéotron’s ability to secure customers can be attributed to its aggressive pricing strategy, which prices basic service very low and allows customers to add features for extra monthly charges. Cogeco reported net additions for its telephony service of about 5,500 subscribers in the first quarter ended November 30, 2005 to bring its total telephony subscriber base to 6,907, two-thirds of which are located in Ontario with the remainder in Quebec. The company introduced its cable telephony service on June 8 of last year. Louis Audet, Cogeco president and CEO, said during a conference call discussing the Q1 results that the company continues to expand its telephony presence throughout its serving areas. He added that during the September to November period, cable telephony availability expanded from about 8% of homes passed to 30% and that the company is on track to make telephony available to 75% of homes passed by August 2006. Rogers, which launched its cable telephony service on July 1, 2005, counted about 50,000 subscribers at the end of its 2005 fiscal year. Leveraging the acquisition of Call-Net Enterprises Inc., combined with continued telephony rollout, the company is well positioned to secure a healthy share of the local telephony market in 2006. Michael Lee, VP of strategy and development at Rogers, highlighted the benefits of the Call-Net purchase during the Citigroup Annual Global Entertainment, Media and Telecommunications conference on January 9. "It brought us a base to work from within cable territory," he said, adding that the acquisition also gave Rogers significant local telephony expertise that it could roll into its own home-phone offering. This year will also be marked by expanded telephony availability. "We continue to see 2006 as an expansion year because we only have home phone to about two-thirds of our subs today," Lee said. "We’ll close out 2006 with full availability to our subscribers where we have high speed and then continue to drive our circuit-switched business outside of territory." Bell Canada has been the main victim of these three cable companies’ success and it is still unclear at this point what the overall impact the introduction of VoIP has had on the country’s largest incumbent telephone company. Nor is it known how well Bell is doing with its own VoIP offering. The company will update investors on February 1 and will release its fourth-quarter and year-end financial and subscriber results a couple of weeks later. While much of the cable telephony activity has taken place in central Canada, Shaw in the west is also experiencing some healthy telephony subscriber gains at the expense of Telus Corp. The company finished its first quarter, ended November 30, 2005, with slightly more than 34,000 net telephony subscriber additions. Shaw now counts 90,651 total digital phone customers. The cableco continues to expand its telephony coverage and on January 11 announced its digital phone service is now available in Vancouver. Telephony service is available to 50% of homes passed, up from 35% at the end of fourth quarter. With the launch in British Columbia’s largest city, Shaw is offering telephony services in five major markets: Vancouver, Victoria, Calgary, Edmonton and Winnipeg. With cableco telephony subscriber gains continuing at a healthy clip, cable companies’ are expected to capture an ever-increasing share of the local telephony market. Many analysts note that cable companies are exceeding projections for subscriber additions. NBI/Michael Sone Associates estimates that cable companies will gain the lion’s share of VoIP subscriber additions over the next several years. (See chart on page 7 for the telecom consultancy’s projections.) Local landline erosion experienced by the incumbent telephone companies in the past will continue until they introduce their own VoIP services or, in the case of Bell Canada, gain greater traction within territory. The current trend will also be perpetuated by the existing regulatory environment, which treats ILEC VoIP services in the same way as traditional circuit-switched telephony. Appeals of the CRTC’s landmark ruling on VoIP are still pending with little or no indication when they might be dealt with. New rules regarding the forbearance of local telephony services are expected to be released during the first quarter of this year, and this should clarify at least to some degree when and under what conditions an ILEC can submit a local forbearance application. The stage appears to be set for a rapid decline in incumbent telephone providers’ share of the local access market, according to a market analysis from NBI/Michael Sone Associates. As the chart above demonstrates, Sone Associates estimates that the ILECs are going to lose a significant portion of their market share over the next couple of years. Both residential and commercial access line compound annual losses are expected to be huge – 6.6% and 2.3% respectively. On the residential front, the ILECs’ market share loss will come primarily from the cable companies’ entry into telephony with VoIP services. Sone Associates estimates that by 2008, 54% of VoIP users will subscribe to cable telephony services.

Cablecos’ share of telephony market continues to grow at steady pace

News | January 18, 2006

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