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.
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
IPTV has taken years to get right, and even longer to make an impact in Canada's communications landscape. After years of experimentation with weaker technologies, both Telus and BCE Inc. settled on Microsoft's lauded media room software - which enables these new features - and began heavy marketing campaigns. But they can only offer the service where they have built out fibre optic networks, a process both slow and costly. (Old copper phone wires don't have the capacity or speed.)
Bell is able to offer its Internet-based TV service only in Toronto and Montreal, and then only in certain neighbourhoods. But Telus began pushing its product, called Optik TV, much earlier and most of British Columbia and Alberta are now wired for service. And it is also being extremely aggressive: Those who sign contracts for Optik and Telus's Internet service get a free home PVR and a free Xbox, a gaming console by Microsoft that can act as a set-top box to hook up another TV.
David Fuller, Telus's chief marketing officer, says Telus and others are starting to bring the interactive feel of personal computers onto the household's main TV set. "It can become much more of a media hub than a traditional TV service," he says, in that it brings the ability to search, customize and use software applications.
The number of IPTV customers is still puny compared to cable. Telus had managed to pull in around 266,000 TV customers by the end of its last fiscal quarter. Bell hasn't even officially started reporting subscribers to its new service. On the other hand, Rogers and Shaw each have about 2.3 million TV customers. Quebecor Inc.'s Vidéotron Ltée has 1.8 million.
Those uneven numbers are also why, in Shaw's Calgary offices and at Vidéotron's offices on Rue St-Jacques, there's more an air of derision and dismissal than of fear.
"There's a perception that we're under siege," says Shaw president Peter Bissonnette. But it isn't that IPTV from Telus is vastly better, he suggests. "The differentiation that's taking place right now is, frankly, taking place on price. A lot of it is driven by price. A free Xbox?"
But beneath the unending cable bravado, there is tension. The cable industry is in serious flux. Shaw, Rogers and Videotron are all preparing to react over this next year, implementing what some consider extremely costly upgrades to improve their own aging but formidable networks in customers' homes.
Manon Brouillette, Vidéotron's executive vice-president of strategy and market development, says Vidéotron will confront the IPTV threat this year with an Internet-enabled TV service that allows cable subscribers to pull up YouTube, Twitter and other social networking sites on living room TVs. Since Vidéotron just launched a wireless smart phone network that plugs into Quebecor's huge store of broadcasting content, she envisages something more dramatic than the current IPTV offering. "You can pause it on your TV and continue on your mobile," she says.
Telecom companies' technology gurus are betting that this "TV Anywhere" phenomenon - of pulling up live TV on their iPad or laptop in the kitchen or finishing last night's shows on the morning commute - will coalesce in the coming year ."Will it be widespread across 90 per cent of the homes this year?" asks Telus's Mr. Fuller. "No. But you'll start to see it."
Mr. Bissonnette doesn't plan to miss out on that mainstreaming. He says that in the coming months, Shaw will begin offering a new service with a brand new boxes that significantly improves on its existing cable service, and counters the Telus threat.
"You can access Internet video content, like YouTube and Flickr and those kinds of things, from this device," Mr. Bissonnette says, adding that users could wirelessly drag movies from their computer to watch them on the household's big screen. "It will also hold a whole host of apps for entertainment - just like iPads and [Google's]Android devices do - to bring you news, sports and social media."
Canadian cable companies haven't been totally sitting still before now. Already nervous about online TV products such as Netflix, many began moving programming online last year, locking it up so only subscribers could see it. They also introduced online movie rentals, and made a lot of TV shows available on demand - replicating the flexibility of the online world.
But even if these moves have thus far neutralized the impact of small online TV services, they have not stopped the well-capitalized phone companies, which are using faster Internet service and IPTV in the grand effort of winning the battle for the household monthly communications bill.
They're winning over people such as Ben Lucier, 36. About a year ago, the Toronto resident cut his Rogers cable cord and signed up with an early version of Bell's IPTV service, now called Fibe TV.
The service is far from perfect, of course. He would like to use it to watch Netflix, but can't. He's also not holding his breath for all the hyped television apps, like Facebook's, which he says he's been hearing about since he signed up a year ago. Also, as someone who has worked in the technology sector, the marketing pitch that this is a fibre optic network is annoying to him, since he knows that Bell uses both fibre optics and old copper wires.
But still he loves it, particularly the ability to change channels without the annoying "lag" that often happens with cable and to pause a show and restart it in another room. Most of all, he likes the interface and the digital guide. "It actually looks like it was made in this decade, as opposed to the Commodore 64 version of the Rogers one," Mr. Lucier says.
"The telcos got game - they finally got game," says Brahm Eiley of Convergence Consulting Group Ltd., a communications consultancy.
"If you're the cable guy, you kind of have to get there" - selling a more interactive, Internet-like television experience.
Mr. Eiley, for one, has no doubt that they will. "The cable guys are stepping up. They will compete."
But what exactly will "getting there" entail? While cable executives play down the looming costs of upgrades and product subsidies, telco executives and analysts point out that transforming vast cable networks into youthful Internet-protocol networks is an arduous and expensive task.
Shaw, for instance, which was supposed to launch wireless service this year, has now delayed that until 2012 and is poised to spend a whack of money just defending its cable TV turf. That cost includes subsidizing the cost of new and improved TV boxes that cost about $500 each.
"Basically, for the first time, cable is facing legacy issues. It takes a lot of effort and time and capital in order to match IPTV," says Canaccord Genuity analyst Dvai Ghose, who is very bullish on Telus's chances.
All of this, needless to say, could mean pressure on profit margins on television and Internet services for the almighty cable companies. Some of them, such as Rogers, have already begun offering steep service discounts - as much as 20 per cent off the monthly bill for a year - just to keep potential converts to Bell's Fibe TV within the fold.
And it isn't cheap for the telcos, either. Even Telus, as it gains customers in a business it once did not even participate in, is taking a hit: Its aggressive promotions have sent the cost of adding one new TV customer soaring as high as $1,000, because of all the hardware it is giving away.
However, even if IPTV is the most technologically advanced TV product around, it's still only the beginning of the "Internet-ization" of the living room. Mr. Eiley of Convergence Consulting says that "it's really year one of this" technology, and Mr. Lucier himself knows that what he's got in his home is still only IPTV in an elementary form - waiting to be upgraded and improved, just like cable companies' current networks.
"I think there's still a long way to go," Mr. Lucier says. "But now that they've got this platform, they really have the foundation built."
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