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Telcos make assault on cable's stranglehold Add to ...

A huge, terrifying shark has just clamped its jagged teeth around a floating mess of chum when the beast, thrashing about on a screen at Telus Corp.'s Toronto offices, suddenly freezes.

Jackie Winterfield, a cheery Telus manager standing in a huge, dark boardroom, has paused the show to demonstrate something. She walks across the room to another television set, taps the remote, and the shark springs back to life, playing from where it left off.

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With this little display, Telus executives are getting a couple of points across. The first is a technological one: Thanks to its multibillion-dollar investment in new, superfast fibre-optic networks, Telus, a company that a half-dozen years ago had precisely zero television customers, is so cutting edge that it can now offer things that its cable arch-nemesis, Shaw Communications Inc. , cannot - such as the ability to pause Jaws in your living room and resume watching it moments later in your bedroom. "This," Ms. Winterfield says, "is where we leave cable behind."

But the second point, unspoken and unintentional but nevertheless made perfectly clear by the choice of programming, is this: We are the predators now. And what a switch that is.

For most of the Internet age - and even before it - the old, lumbering incumbent phone companies have watched as cable providers kicked their teeth in. The cable guys, led by Shaw, Rogers Communications Inc. and Quebecor Inc.'s Videotron unit, destroyed the telcos' cherished home phone monopoly and snatched away millions of customers. They grabbed the largest share of the market for high-speed Internet; Rogers, through well-timed acquisitions and clever marketing, ultimately supplanted BCE Inc.'s Bell Mobility unit as the country's largest mobile phone provider; Videotron and Shaw are now taking aim at the wireless dominance of Bell in Quebec and Telus in Alberta and British Columbia. The cable-versus-telco brawl has been a rather lopsided one, a fact that shows where it matters most to investors - in the stock market, where Rogers and Shaw have largely outperformed their telco counterparts in the long run.

But now it's payback time, or so telco executives believe. The new battleground is the television set, which cable TV still dominates, especially in affluent cities. The 6.4 million cable TV customers of Shaw, Rogers and Videotron represent what BCE chief executive officer George Cope calls "the last monopoly" - and he and Telus boss Darren Entwistle hope to smash it.

Their weapon in this fight is a new and technologically-malleable broadband network that makes possible the type of functionality that was on display in that Telus boardroom. The technology the two major phone companies are rolling out, known as IPTV (for Internet-protocol technology), is aimed squarely at capitalizing on the next big trend in home entertainment. The power of the Internet is coming to the nation's living rooms, and as it does, it will reshape the fight for the household's biggest monthly entertainment bill.

The shift is being driven by the phone companies' aggressive push of TV service, at precisely the same time Netflix and Apple TV are jostling into Canada, playing on viewers' new preferences. Consumers no longer want to merely receive television signals passively, but order up exactly the video they want at that moment. As one measure of this, Canadians are, in fact, among the world's most voracious watchers of online video, according to a recent study by Scotia Capital.

IPTV tries to answer this demand with fancy new functions. Customers of Telus's new TV service, for instance, can search the digital guide for the names of their favourite actors or directors, program their personal video recorders (PVRs) from their smart phones, or use a software application to select from a merry carousel of Christmas movies and festive sing-a-longs.

Older cable networks across Canada, and in particular the one belonging to Shaw, can't do this sort of thing. But that's about to change, too. Canada's largest cable companies will strike back with new technology this year, perhaps within a few months. No one really believes they're going to meekly allow the phone companies to beat them. It's going to be war, and war is expensive.

Cable fights back

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