ISPs aspiring to launch TV services face uncertainty

Small Internet service providers looking to provide TV service should hold off on investment because of the uncertain future of the broadcast television market, according to 3Macs analyst Troy Crandall. At the recent CRTC wireline hearing, representatives from the Canadian Network Operators’ Consortium, a trade group for small ISPs, told the commission that wholesale rates need to drop in order for their members to offer other services, including television, to customers. Some smaller companies, such as VMedia Inc. and Distributel Communications Ltd., already provide IPTV individually or as part of a bundle with Internet access and home-phone service. Crandall said that the television market is fiercely competitive, has significant barriers to entry, and is undergoing substantial changes because of technological advancements and potential regulatory amendments from the CRTC’s Let’s Talk TV process. “If I was , I would sit back and watch how this plays out a little bit, because right now they are sitting in somewhat of a sweet spot,” he said in a phone interview on Friday. “People obviously need the Internet to get these types of services like the over-the-top services. Also, as people watch more and more television over the Internet, they need to move to higher-tier packages, either at higher speeds or higher bandwidth caps. So in a pretty good position right now.” VMedia director George Burger said in a phone interview Wednesday that his company’s service bundles, which include Internet access, a la carte choice for its IPTV service and an Internet-based PVR that streamlines access to other OTT services including Netflix, let it fill a niche ignored by the incumbents. “We're getting a lot of business from people who tell us that if it weren't for us they would have cut the cord,” he said. “If you want diversity and competition in the broadcasting space, the only way that you're going to get it is going to be from ISPs like ourselves. That's the only platform that is able to supply the market as a whole.” Burger said his company was growing so quickly that demand for its IPTV platform had in the past outpaced its supply of bandwidth, although he said such problems have since been fixed. Marc Gaudrault, CEO of Ontario-based ISP Teksavvy Solutions Inc., said his company has looked into providing TV service and there is “no doubt” there is an appetite for it from customers. ”People are paying a lot and they're not feeling like they're getting a lot of value from their TV service,” he said. “And that's exactly where companies like Teksavvy play. We can provide alternatives.” Crandall said operating as an ISP and providing television content are “two very different businesses.” He pointed to the recent introduction of the Shomi streaming service from Rogers Communications Inc. and Shaw Communications Inc., and the similar CraveTV service from BCE Inc. as evidence of a shift towards programming delivered by the Internet, yet also noted that these services have been implemented by companies that own content and have deep pockets to invest in infrastructure and promotion. “Even the big guys don't know how this is going to play out,” he said. “It would be quite a large business bet on the part of the smaller players. It’s something they have to continue to have to watch, but just given the disruption that currently occurring in the space, it would be an expensive move into TV and it might not work out for them.” Burger said VMedia has invested in its customer service and technical expertise, and he said he is proud of how effective the company’s call centre has become in addressing customer issues on its IPTV, Internet and home-phone services. “The real complication, the reality of it is, that we really have to have all the skillsets of Rogers and Bell without that deep-pocketed capital base,” he said. “And that's the single biggest challenge.” Burger said there have been “pricing issues” in his negotiations with the incumbents, yet he doesn’t fault them for being tough because they are “economically rational actors.” Crandall said the TV-distribution business requires economies of scale, and the small companies would be hard-pressed to scale their businesses up in the face of aggressive competition from the incumbents. “If you have to provide all the same channels as your competitor does, how are you going to provide the same cost when one of them has two million subscribers and you have maybe 300,000 in the most optimistic view?” he said. Crandall said the small ISPs would have to strike deals with content owners and distributors such as Bell and Rogers, which would do their best to deter any competition while staying within the government’s rules for vertically integrated media companies. “If you start looking like a threat, the big guys have the ability to ratchet price down temporarily if they need to,” he said. “There's always a fine line from the Competition Bureau on what's considered competitive or predatory pricing, but business is business and they can figure it out. The big companies have been in the business long enough to know.” — With reporting by Peter Henderson at phenderson@thewirereport.ca and editing by Derek Abma at dabma@thewirereport.ca

ISPs aspiring to launch TV services face uncertainty

Broadcast | December 12, 2014

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ISPs aspiring to launch TV services face uncertainty

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