Telcos and cablecos increasingly tuning in to each other’s markets

They say it’s difficult to walk a mile in someone else’s shoes, but telephone service providers and cablecos are doing just that these days: tackling each other’s traditional markets. However, according to representatives from each side, the move is no stroll in the park. Kelvin Shepherd, president, consumer markets at MTS Allstream Inc., explained the challenges his firm – a Winnipeg phone service provider – faced when it started operating in the TV world. Meanwhile Pat Kiely, director, business operations at Mountain Cablevision Ltd. in Hamilton ON, described how difficult it was for his firm to turn on phone service. Both spoke at VON Canada, a technology conference in Toronto held April 3 to 5. A few years ago, MTS recognized that cablecos were keen on the lucrative phone service market. So MTS prepared a counterattack, ramping up a digital TV service in 2001. "Our strategy was to prepare early," Shepherd said. But it wasn’t easy: Shepherd’s firm faced a tough competitor, Shaw, which served 90% of Manitoba’s TV subscribers. And MTS garnered some attention on Bay Street, which expressed no small amount of concern about its TV prospects. "The investment community was very skeptical," Shepherd said. Investors were worried that it would cost too much money for MTS to install the network equipment for TV services. It took some time to convince investors that the carrier was on the right track, Shepherd said. Even today other service providers have trouble impressing stock jockeys with their TV dreams. "It’s still an extremely tough business case for any telco to make." Meanwhile, content providers were worried that MTS’ TV play – based on IP – spelled a security and digital-rights-management nightmare. "They see ‘IP’ and think ‘Internet’ and ‘Kazaa,’" Shepherd said. Despite the challenges, MTS now counts more than 50,000 TV subscribers. The provider owns 20% of the Manitoba market, Shepherd said. Each customer represents $45 of new revenue per month. And 70% of new TV customers also sign up for high-speed Internet service. "The key to the whole approach is bundling," Shepherd said. "Increasingly, the opportunity to sell one-off services is diminishing." MTS is looking forward to leveraging the TV install base for not just new high-speed Internet revenues, but also local and long-distance phone service, as well as other applications designed to entice the customer and keep him within the MTS fold. Kiely from Mountain Cablevision said entering the phone market with a Voice over IP (VoIP) service required hefty network preparations and finding appropriate partners to provide equipment and certain sorts of expertise – bill management, for instance (Mountain wasn’t used to giving customers detailed bills that list call records). Mountain purchased network gear from Cisco Systems Inc. to beef up its bandwidth. The firm also employed dense wave division multiplexing (DWDM) technology to increase network capacity even further. DWDM essentially splits fibre-optic cables so they can carry more data than they normally would. "We had to get rid of terms like ‘reset,’" Kiely said. Whereas Mountain used to be able to basically reboot its network equipment on the fly, doing so when customers might be on the phone would be a recipe for disaster. Mountain learned new terms like "hot swappable" and "resiliency" to match its newfound attention to uptime. Mountain also had to engineer its network to ensure a high quality of service. The firm decided to invest in equipment and build network nodes that contained no more than 125 homes. With so few houses in each net segment, users can rest assured that their phone calls will continue uninterrupted even if everyone else in the neighbourhood is downloading movies at the same time. If Mountain faced a number-one bugbear, it might have been billing. "We’d never dealt with call-detail records before," Kiely said. So Mountain turned to RR Enterprises Ltd. of Mississauga ON for a solution. The subscriber-management system provider worked up an automated billing platform that pulls call records from Mountain’s network equipment and formats it for customers. Kiely said RR Enterprises took just a few months to build the system. "We would be under water if not for that." Why are cablecos and telcos chasing each other’s traditional markets? Industry observers have said it’s a case of greener pastures, particularly from the cablecos’ point of view. The voice services arena is large and potentially lucrative, and cablecos could squeeze substantial revenues from it. For the telcos, it’s a matter of protection: knowing full well that cablecos wanted into the phone industry – and that the cableco invasion would curtail profits – firms like MTS sought ways to fill the impending revenue hole. TV services seemed to be the right market to enter. Time will tell, however, how successful each will be at playing the other’s game.

Telcos and cablecos increasingly tuning in to each other’s markets

News | 04/10/2006 4:00 am EDT

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