Bundling much more important, according to regional telcos

Two of Canada’s larger regional incumbent telephone companies are going to rely more heavily on service bundling as a way to combat increasing local residential subscriber erosion. Executives from both Aliant Inc. and MTS Allstream said during recent fourth-quarter and year-end financial conference calls that promoting their multi-service plans will play a bigger role in the future. This shouldn’t come as much of a surprise as bundling and multi-service strategies represent one of the best subscriber retention and attraction tools available to incumbent local exchange carriers (ILECs). This new competitive arena, where the cable companies carry much greater clout in the industry, necessitates such moves on the part of the incumbents. Jay Forbes, president and CEO of Aliant, noted during the January 27 Q4 and fiscal 2005 conference call that providing better functionality, superior quality and leveraging the company’s value packages will serve as the primary tools to limit the decline in local and long-distance revenue. A key part of those value packages will be Aliant’s TV service. The company experienced a significant spike in local residential churn due to aggressive expansion from main rival EastLink. The cable and telephony provider recently expanded into Summerside PE, Annapolis NS and into Cape Breton NS. Kelvin Sheppard, COO of MTS Allstream, indicated during the company’s January 31 call that most of the customers the company is losing to Shaw are those MTS Allstream expected to lose. "They’re practically all Shaw TV or Internet customers that are to them for voice. Obviously, their pricing is attractive to that segment, that isn’t a surprise," he said. But Sheppard added that his company’s bundling strategy is paying off in combating the decline in the local residential market. "It’s generating some up-sell and certainly we’re seeing improvements in our churn…because of that," he said. While bundling may pay off down the road, it didn’t in 2005. MTS Allstream felt the sting of local landline erosion to a much greater degree as it lost approximately 5% of its local access lines in fiscal 2005. Both Aliant and MTS noted during their respective conference calls that their TV strategies would factor to a larger extent in battling the competition. Aliant continues to expand its TV offering within the Halifax urban area and plans to enter the St. John’s NF market this year. MTS Allstream, which already has more than 50,000 TV customers, will continue to grow its TV business but has decided to scale back slightly on network upgrades as the company undertakes a comprehensive review of operations. As part of its TV rollout plan, Aliant is spending about $40 million over three years – a program announced in 2004 – to expand the reach of its TV service to 200,000 homes in Atlantic Canada. Forbes says the company is pleased with the way it is being received. "We’re not releasing any details to this point in terms of subscriber growth, penetration, et cetera, but we will say that we are absolutely delighted with the this was received in the Halifax marketplace. We have found a high correlation of high-speed Internet customers of Aliant’s that have moved to this IPTV platform and those that have been very satisfied with the service and confirmed that it is a far superior offering to what they had enjoyed previously," he said. MTS Allstream is expanding bandwidth capabilities of its network, albeit at a slower-than-previously-estimated pace. "Although we’ve somewhat slowed our 26 Mbps build, we would have certainly in the mid-70% range coverage at 26 Mbps by the end of this year," Sheppard said. "In fact, when we look at the other investments we’re making in things like rolling out high-definition, which we expect to do later this year, and PVR capability and some other things, we’re going to be very competitive in terms of TV." Television has become an important service offering for telcos as they struggle to compete with their cableco rivals for control of the broadband home. SaskTel was the first Canadian telco to introduce a TV offering when it unveiled its service in September 2002. The provincial ILEC has more than 42,000 subscribers. Telus Corp. has also started a phased rollout of its Telus TV offering in select areas of Calgary and Edmonton. Bell Canada is expected to roll out its Internet Protocol Television (IPTV) service in the near future. At a November 2005 Scotia Capital conference on IPTV, SaskTel president and CEO Robert Watson said the company had added 12,000 new TV customers at that point and that it was adding between 500 and 700 new customers per month. Most industry observers indicate that the cable companies have a leg up on the telcos and this is primarily due to favourable regulatory treatment of their telephony services. This will likely change in the future as telcos catch up in the TV arena as well as take advantage of local residential forbearance when that becomes available to them.

Bundling much more important, according to regional telcos

News | February 2, 2006

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