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Credit outlook of cable firms at risk from fibre optics: DBRS

In the telecom versus cable dust up for the eyeballs of the nation, you may want to chalk up a win for the telecom companies.

That's the contention of bond rating firm DBRS, in an analysis of the roll out by phone companies of fibre optic cables to homes.

The new service has been introduced over the past three years by BCE Inc., Telus Corp., Bell Aliant Regional Communications, and Manitoba Telecom Services Inc. The telecom offering goes by the formal name of internet protocol television service, or IPTV for short, and involves converting TV signals into small bits of computer data that can be pumped over fibre optic cables.

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The big gain for the telecos is that the technology gives them a high quality way to move TV, internet, and telephone signals over a single line. Subscribers can do their social networking, browsing and video viewing all on their television screens.

As a credit rater, DBRS looks at financial reality from the standpoint of bond holders, and it views fibre optics as a way for telecom companies to offset the bleeding of business from their traditional landline residential phone services, and gain a competitive edge against their arch rivals in the cable industry.

For stockholders, credit rating views are important. The stronger the rating, the more able a company is to pay secure dividends and weather adversity.

"DBRS believes the integration capabilities of IPTV services provide telcos with some strong relative advantages over traditional cable service providers," it says.

It also figures that subscribers switching from cable will be more likely to bring their broadband business with them, and are more likely to sign up for landline services.

"DBRS views IPTV subscribership as a catalyst for the long-term growth of telco wireline businesses."

The market share held by fibre optic subscribers has increased from 1.5 per cent in 2007 to 5.6 per cent in 2011. Cable had a 70 per cent share of the business back in 2007, and fell to 66.7 per cent by 2011. Satellite subscriber numbers have remained relatively constant over this period, at a level around 28 per cent.

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For cable companies, such as Rogers Communications Inc., Cogeco Cable Inc., and Shaw Communications Inc., the development isn't good. All three also experienced declines this year in cable subscriber numbers. Cable is most vulnerable in densely populated urban areas where fibre has the biggest reach, such as the important Vancouver, Calgary and Toronto markets, according to DBRS.

"As IPTV gains traction, competition will intensify for cable companies, which will place further pressure on subscriber bases across multiple wireline segments. Should this translate into material declines in sales, profits and cashflow for cable companies, their credit risk profiles could be meaningfully affected," it warned.

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