Cablecos poised to increase lead in broadband speeds, but telcos not out yet

Telcos such as Bell Canada and Telus Corp. will lose the war against cablecos such as Rogers Communications Inc. and Vidéotron ltée for broadband service supremacy – unless the phone companies take drastic and expensive actions, according to telecom analyst Dvai Ghose.Speaking at the 5th Canadian Telecommunications Forum late last year, the Genuity Capital Markets’ analyst said many cable companies already offer higher broadband service speeds than some telcos. And now that certain cablecos are rolling out the latest version of the Data over Cable Service Interface Specifications (DOCSIS 3.0) for broadband transport, the speed gap between the telcos and the cablecos could grow even wider through 2009 and beyond.And whereas many telcos are upgrading their DSL broadband networks to support rates in the 5 to 15 Mbps range, DOCSIS 3.0 allows cablecos to offer speeds closer to 80 to 100 Mbps, enabling them to support a wider range of services (high-definition TV, music streaming, video downloads, advanced voice services, et cetera) and potentially win a bigger share of the communication market.“It’s not even a fair competition,” Ghose said.But in this perennial telco-cableco battle for broadband dominance, the telcos aren’t out of the running just yet. According to Ghose, the carriers could still strike back with an expensive, but proven strategy: fibre to the home (FTTH), which sees fibre-optic networks built all the way out to customers’ premises, supplying ultra-fast broadband service.The Verizon solutionVerizon opted for this route a couple of years ago when it unveiled FiOS, the firm’s FTTH service in various US markets. While some industry observers originally wondered if Verizon’s strategy was economically viable (costs per customer deployment were said to be in the US$6,000 range), FiOS now represents the hallmark of telco broadband services. It supports download speeds close to 50 Mbps, and it also supports FiOS TV, with up to 100 high-definition channels and 11,000 video-on-demand titles.Other North American telcos “have to bite the bullet and do what Verizon has done,” Ghose said. “Verizon has gone from being derided to being accepted...even being complimented for taking the pioneering approach.”But pioneering isn’t necessarily cost-effective, notes Carmi Levy, an independent telecom industry analyst. New network infrastructure is expensive for cablecos and telcos – perhaps more so for telcos, because FTTH requires installing new fibre-optic cables, whereas DOCSIS 3.0 works over the cabelcos’ existing network plant.“The question is how much are consumers willing to pay for the privilege, and how much are the providers willing to risk to be the first in the market?” Levy said. “It’s one thing to say you want to be the fastest provider – it’s another thing to do that cost effectively at a level that the market is willing to pay for.”Having decided FTTH is uneconomical, Bell is implementing a less-intensive iteration known as fibre to the node (FTTN), which brings fibre-optic cables to within about one kilometre of customer premises. The architecture allows Bell to offer residential broadband rates near 16 Mbps – faster than Rogers’ top-speed residential broadband service, which provides just 10 Mbps.Last summer Bell upped the ante with its FTTN strategy by introducing FTTH in certain places. The company said it would run fibre directly into new multi-dwelling units (MDUs) such as condominium and apartment buildings being built along the Quebec-Windsor corridor in Ontario and Quebec.“Along with our ongoing investments to build out new fibre to neighbourhoods, enhance our IP networks for business, and expand our national high-speed wireless network, the Fibre to MDU program is part of our commitment to deliver a better customer experience at all levels,” said George Cope, president of Bell Canada, in an August press statement.These days, the customer’s experience is linked to network efficiency: how many services can the carrier offer on one network? Many service providers consider broadband their backbone for not only Internet, but also voice and video – including TV. According to Ghose, cablecos have the advantage here as well. Rogers and Shaw seem to be succeeding in winning customers for their broadband-based phone services, while Telus and Bell struggle with their Internet Protocol Television (IPTV) offerings. Telus TV “has been disappointing” and Bell put its IPTV plans “on ice some time ago,” he said.Chris Gerritsen, spokesman for Telus, said his company is well aware of its need for more broadband to support the TV service. Telus has implemented a $600-million network build for IPTV, and the firm is also watching closely developments in video compression technologies to ensure it’s using the most effective solution – better video compression, lower bandwidth requirements.“IPTV allows us to use our expertise and infrastructure,” Gerritsen said. “It’s not only about the speed. It’s about what you do with it.”Gerritsen said Telus is building “fibre close to the home.” He referenced the firm’s Gigabit Passive Optical Network (GPON) trials – technology that Telus expects will provide bandwidth enough to support customers’ growing bandwidth appetite.For now, the speed resides on cableco broadband networks. In the US, Comcast Corp. and CSC Holdings Inc. (commonly known as Cablevision) are rolling out DOCSIS 3.0 services. As for Canada, last February Quebec-based Vidéotron announced a trial of DOCSIS 3.0 service, providing access to download speeds of 30 to 50 Mbps for customers in Laval.Telecom analysts at SeaBoard Group note that Videotron’s service is not only fast, but also relatively inexpensive. “Laval is the city where Internet service can be had at the lowest price per megabit; Vidéotron’s Ultimate Speed 50 Internet service is only $1.80 per Mbps (compared to a range of $5 to $6 per Mbps in much of the rest of the country),” reads a SeaBoard Group report published in December.The DOCSIS 3.0 versus FTTH battle is also likely to find itself before the CRTC at some point, according to Ghose. He suggests that cablecos might be forced to unbundle their local loops just as the telcos were ordered to in the early days of local telephone competition. The unbundling of cableco loops would enable the telcos to resell cablecos capacity to end users.“Should and will the cablecos be forced to unbundle their local loops?” Ghose said. “Time will tell.”Levy said unbundling could seriously disrupt the market, complicating the cableco business model. “It reduces their window of opportunity to derive exclusive revenue from that infrastructure. But another way to look it is that...they’d make up on volume what they’d lose on that exclusivity.”Will the cablecos necessarily win the broadband war? Levy said that remains to be seen. For now cable companies have a distinct advantage. “But that doesn’t mean that the telcos can’t go in and beat the cablecos in certain markets or on certain businesses.” He pointed to the telcos’ long-standing customer relationships and their ubiquitous network infrastructure, which tends to reach further into the Canadian landscape than cable infrastructure does.For Ghose, the telcos’ ability to compete hinges on their willingness to follow Verizon’s lead and implement FTTH. “It’s an inevitable conclusion that the telcos will come to over time,” he said.

Cablecos poised to increase lead in broadband speeds, but telcos not out yet

Broadcast | January 5, 2009

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