Éric Marotte is one of a growing number of Canadians who are hanging up on traditional telephone companies.
The 38-year-old computer consultant in December signed up for a free, four-month trial of his local cable television provider's phone service over a high-speed Internet connection, cancelling his local phone line with Bell Canada.
Mr. Marotte is on the front lines of change in the telecom industry, as new technologies are bringing cable and phone companies into direct competition on each other's turf.
They're all racing to offer the holy grail of phone, TV and high-speed Internet services aimed at locking up the loyalty of customers like Mr. Marotte.
It's been nearly two months since his trial with Vidéotron Ltée's phone service started, and Mr. Marotte says he's ready for a permanent change. He sees no difference in quality when he makes calls over the same network that brings TV signals into his home. And he reckons he can dramatically reduce his monthly local phone bill of about $30.
“For me, it's going to be no contest,” says Mr. Marotte, who also buys high-speed Internet and cable-TV services from Vidéotron. “Equal quality and lower price.”
Cable operators have spent billions of dollars upgrading their networks in recent years. So analysts say it's a relatively small step to offer voice over Internet protocol (VoIP) phone services. IP technology compresses voice and data traffic into packets that can be sent together over a single network.
In contrast, most phone companies are still prepping their infrastructure for TV. They're using new technologies that carry TV signals over copper phone lines.
The growth potential for this new sector is significant. Cable operators' VoIP services will attract 1.37 million consumers by the end of 2007, according to Brahm Eiley of Convergence Consulting Group Ltd., whose clients include both phone and cable companies. He estimates the phone carriers will have 500,000 non-satellite TV clients in the same period.
“Our view is that cable wins the first round in this share-shifting battle because VoIP will be available across a wide footprint quite quickly,” Merrill Lynch analyst Glen Campbell says. “In addition, we think the economics are quite attractive. On the network side, the money's been spent. And the gross margins should be quite high on voice service.”
Vidéotron, a unit of Quebecor Inc., launched its VoIP offering last month on Montreal's South Shore, making it the first cable-TV company in Canada with such a service. Shaw Communications Inc., Rogers Communications Inc., and Cogeco Inc. will follow with their own VoIP services in coming months.
“We want to be a major player in telecom,” Manon Brouillette, Vidéotron's vice-president of marketing and new product development, said in an interview earlier this month. She said the company has added more VoIP clients than it expected so far.
Vidéotron says its triple-play bundle is 30 per cent cheaper than a similar bundle sold by Bell Canada, the country's biggest phone company. Regulations restrict the discounts that the incumbent phone companies can offer for bundles that include local phone service. Bell could strike back by lowering its Internet prices over all, says CIBC World Markets analyst Dvai Ghose. Bell is already attacking on another front. A print advertising campaign in parts of Quebec warns customers off cable operators' phone services, questioning their reliability.
Still, some of the incumbent phone companies including Bell have introduced VoIP services for businesses and are considering offering it to residential customers. They also plan to roll out or expand their TV services.
Bell, which already offers satellite TV, is spending $1.2-billion through 2008 to bring fibre to nodes within 1.2 kilometres of most homes in the Quebec-Windsor corridor in order to offer IP-based TV.
Trials of IP TV will start in the second half of this year, Robert Odendaal, president of the Bell Video Group, said in an interview. Bell already offers very high-speed digital subscriber (VDSL) lines that can carry TV signals in high-rise buildings in Toronto, Montreal and Ottawa. The company's VDSL and IP TV services will eventually offer enhanced products such as video on demand and high-definition TV, Mr. Odendaal said.
Aliant Inc. is investing $40-million over three years to introduce IP TV service. Telus Corp. is also doing TV trials. And since Saskatchewan Telecommunications and Manitoba Telecom Services Inc. launched TV services several years ago, they've together signed up just over 57,000 clients.
Still, unless compression technology improves significantly, phone companies' current investments may not be enough, says National Bank Financial analyst Greg MacDonald. They will eventually have to bring fibre to nodes that are less than one kilometre from houses in order to have sufficient bandwidth to offer a TV product that can compete with cable, he said. Verizon Communications Inc., a U.S. carrier, is planning to run fibre to individual homes.
“Cable companies have better networks and therefore better products on the cable side,” Mr. MacDonald says. “The only way for the telcos to catch up is to spend a lot of money to upgrade the capacity of their networks. Telcos will get there, but who has the advantage in the near term? Cable does.”
Mr. Odendaal disagrees. “There's more than enough demonstrative evidence that we can run it in that footprint,” he says.
Some analysts don't see a winner in the cable-telecom war.
“My bottom line is telco-cable convergence is bad for both,” Mr. Ghose says. “They're both basically chasing mature markets with nothing obvious to add in terms of value. So the only beneficiary that's obvious is the consumer.”
