The Toronto condo market is cooling, but a new battle is heating up for those affluent homeowners.
BCE Inc. is ramping up efforts to break Rogers Communications Inc.'s decades-old grip on the urban television market by dangling deep discounts to entice condo dwellers to make the switch to its new TV service. The telco considers Toronto to be one of the "last monopolies" of its cable rivals. It is now betting that its new Internet-protocol television service, called Fibe, will make inroads with tech-savvy urbanites who have previously shunned its satellite TV.
Downtown condos, in particular, have long eluded Bell because of bylaws preventing residents from cluttering up balconies with satellite equipment, reinforcing Rogers' ability to sign exclusive deals with developers. Now that some of those deals have expired and telcos have modern services that raise no aesthetic concerns, Bell is aiming to poach customers from all those glass boxes in the sky. Although demographics vary, condo owners tend to be retirees or young professionals with high levels of disposable income.
To persuade those consumers to cut the cord on cable, Bell has returned to offering 12-month teaser rates for Fibe, a promotional strategy that has proven problematic in the past. It has resurrected lengthy discounts during the holiday season because it is a time when consumers traditionally shell out big bucks for flat-screen TVs, laptops and even tablet computers.
As Torontonians hit the malls, Bell has launched a marketing blitz that is squarely aimed at the city's condo core: Fibe TV plus a free PVR for as low as $19.95 a month for one year. To qualify for that teaser TV rate, however, customers must also lock into a bundle that includes Internet and home phone for extra cost. (After the promo period expires, the monthly rate for Fibe TV rises to $37.95.) Additionally, Bell is leveraging its ownership of electronics retailer The Source to offer in-store promotions.
Bell, though, has been offering various discounts over the past year, so this latest move is bound to raise questions with investors about its ability to protect profit margins.
"Rogers really had a bit of a monopoly on urban television in Toronto and Vidéotron did in Montreal," said Wade Oosterman, head of Bell's wireless division and residential services. "That's kind of the last battleground that's opened up. We all now have access rights to buildings. "
Still, analysts have previously raised concerns about the "dilutive effects" of six-month discounts on margins. In May, BCE chief executive officer George Cope said Bell stopped offering 12-month promotions, reverting instead to six-month offers, because customers were confusing teasers with regular rates. "And so it becomes much more expensive at the call centre in terms of customers calling in on month 13 because, in fairness, they'd forgotten they had a 12-month promotion," he said at the time.
The new 12-month deals are only being offered in select areas such as condos. "It's an intensely competitive market … And we of course know that price matters, so we put offers on our best product which is Fibe TV," Mr. Oosterman said.
Bell began offering Fibe TV in late 2010. At the end of the third-quarter of 2012, Bell had more than 2.1 million television subscribers with the lion's share still on satellite. Fibe customers numbered about 200,000 at that time. The company, however, has the potential to offer Fibe to about 2.8 million homes and plans to broaden that footprint to 3.3 million households in Ontario and Quebec by the end of this year.
That partly involves striking long-term deals with condo developers that allow Bell to run fibre-optic cable into new buildings, while paving the way for marketing opportunities for custom in-suite wiring, exclusive pre-occupancy offers or promotions at builder events.
Mark Karam, vice-president at Menkes Developments, said both Bell and Rogers strike deals with developers to get that critical first shot at owning the customer. Sometimes that involves paying the developer a marketing fee that varies from project to project. He noted, though, that Bell is also trying up the ante by running fibre into individual suites in projects like the Four Seasons private residences in Toronto.
"Some developers, over the years have tried to go exclusive and try to get more out of it, if you will," Mr. Karam said.
"Our policy as a company has been to allow both to compete in the marketplace to give purchasers as much choice as possible."
Rogers, though, recently announced enhancements to its NextBox 2.0, its deluxe TV service and upgraded its Internet speeds. It is offering holiday promotions on Internet and digital TV bundles, including one for $64.72 a month for six months on a two-year contract that includes a free HD PVR rental. It is also striking back at Bell on home phone with hefty two-year discounts.
"Bell already started with very deep discounts back in Q4 of last year. And I think that tells the market something. It tells the market that the Fibe product is not going as well as somebody would like it to," said John Boynton, chief marketing officer at Rogers. "I think that the fact that they've gone to more discounting tells you one and one thing only, Rogers customers are not leaving to go to the Bell Fibe product."