Upselling to add ARPU key to MTS TV’s future

Manitoba incumbent telco MTS Inc. is arguably the most advanced IPTV provider in Canada, but the firm seems to be approaching the limit of how much business TV over DSL lines can realistically win away from entrenched TV distributors. Subscribers to MTS’ TV-over-DSL service hit 56,571 in the three months ending June 30, a 3.9% increase over the 54,439 in Q1 of 2006. "We achieved strong year-over-year increases from digital television, with revenues up by 46.3% in the quarter, and customers climbing by 36.8% ," said MTS CFO Wayne Demkey during the company’s recent second quarter earnings conference call. Extending that year-over-year comparison back a bit further reveals a slowdown in subscriber growth, however. While 15,214 new subscribers were added to MTS TV’s roster from Q2 2005 to Q2 2006 – the 36.8% growth Demkey mentioned – 21,385 were added between the second quarters of 2004 and 2005. Weighed against a Q2 2004 subscriber level of 19,972, that 2004-2005 year-over-year growth translates to a whopping 107.1%. During the conference call, Genuity Capital Markets cable/telecom services analyst Dvai Ghose referred to the slowdown in market share growth as "understandable," and indeed it is. When MTS TV first launched in January 2003, it was accessible to only 9% of Winnipeg’s population; by the end of the first quarter this year, more than 92% of the city’s residents were eligible for the service. It’s clear, therefore, that MTS TV has nearly reached the saturation point in Winnipeg. However, Ghose also asked whether the company was actively putting the brakes on its DSL TV growth to avoid a dilutive effect on the all-important subscribers-to-revenue ratio, as well as overshadowing the growth rates of MTS’ mainstay consumer services such as home telephony and high-speed Internet. "We’re going to continue to work on acquiring customers and more importantly growing revenues and improving our ARPU as we go ahead," answered Kelvin Shepherd, president of consumer markets at MTS. "We’ve achieved a solid market share position and we continue to see growth, but it is moderated by the fact that we now have some higher penetration and have basically completed our footprint expansion." Clearly, eking more revenue out of each customer will likely play a much bigger part in MTS’ strategic plan in the future than adding large amounts of new subscribers. The telco added a video on demand service in June last year, and since then it’s signed distribution agreements with major US movie studios such as Warner Brothers, MGM and Sony, giving it a large library of films to offer on demand. In November 2005, then-president of MTS’ Manitoba division Cheryl Barker, told attendees at a Scotia Capital conference that video on demand had generated $50,000 in additional revenue in October 2005 alone, with the average customer spending approximately $6 per month on VOD programming. MTS’ monthly ARPU is now $46 thanks to such add-ons. Another possible source of concern is the technology driving MTS’ DSL network. The Manitoba telco uses very high data-rate DSL (VDSL), rather than the asymmetric DSL (ADSL) used by other incumbent telephone utilities. While VDSL provides maximum download speeds five to six times faster than ADSL, it can only be carried a short distance over conventional copper cable. As MTS lays more fibre optic cable to neighbourhoods, however, its ability to deliver VDSL will increase. All factors considered, it’s clear MTS is now in the television business for good, and is keeping pace with the established players in terms of rolling out next-generation standards such as high-definition television (HDTV). "We remain focused in driving forward on TV," said Shepherd. "We’re in the field right now in technical trials with HDTV, and certainly are working hard to launch that by year end."

Upselling to add ARPU key to MTS TV’s future

News | 08/01/2006 4:00 am EDT

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