It's all about the bundle. Canada's telecom companies want to sell you Internet, phone and television services all in one tidy package, and now independent players are trying to gain that same advantage.
Small Internet service providers (ISPs), which use regulated wholesale access to the incumbent telephone and cable companies' networks to sell their own retail customers Internet, are beginning to offer conventional television service using Internet protocol television (IPTV) technology.
"It's very critical," Matt Stein, CEO of Distributel Communications, said of the offering, which is delivered using the Internet but allows customers to watch traditional broadcast channels in real-time using set-top boxes that connect to their TV sets. "Our customers are asking for bundles. Television has been one of the primary things customers were asking for and we're benefiting greatly by having it in our bundle."
Toronto-based Distributel, which sells Internet and long distance services to about 200,000 customers, started offering IPTV in parts of Ontario and Quebec in October through a partnership with Zazeen Inc., which launched its own IPTV service last year. Distributel and Zazeen have not disclosed how many television customers they have.
Startup VMedia Inc. also launched an Internet and IPTV business in 2013 and by January expects to have about 15,000 customers, 6,000 of whom subscribe to its television service, according to George Burger, an adviser to the Toronto company.
TekSavvy Solutions Inc., based in Chatham, Ont., said in September it is also considering expanding beyond Internet and phone to offer television services. Meanwhile, about a dozen other companies including a number of small ISPs have told the Canadian Radio-television and Telecommunications Commission they want to become TV distributors (about half of those have already been granted licences though they are not yet operating).
But several cost constraints are holding small players back from launching widespread television services that challenge the established cable operators and telephone companies (which have also started offering IPTV).
Once they win licences to distribute TV, they must also buy the broadcast rights to channels from media owners, such as BCE Inc., Rogers Communications Inc. and Shaw Communications Inc., plus pay the wholesale rates for the Internet bandwidth necessary to deliver the signals. (BCE owns 15 per cent of The Globe and Mail.)
Distributel's Mr. Stein said negotiating content rights is not easy, but characterized the process as manageable. VMedia buys content with the help of the Canadian Cable Systems Alliance, an industry group that negotiates access to television programming on behalf of dozens of small cable operators.
But both companies, along with other independent ISPs, highlighted the high cost of bandwidth at two separate regulatory proceedings this fall, including the CRTC's review of the broadcast system and its recently concluded hearing on the wholesale Internet market.
TekSavvy CEO Marc Gaudrault told the CRTC in September that his company's Internet customers have said they also want television and would consider taking their business elsewhere to get a bundle. "We have strong technical abilities and have creative product designers, and we know we can add dynamic competition to the marketplace."
He said the company's biggest barrier is the cost of bandwidth, which the commission currently regulates on a wholesale basis although independent ISPs say the prices are too high. "The bandwidth costs to offer the kind of non-crippled, good-quality TV service we'd like to offer are prohibitive."
Mr. Stein said the profit margin on Distributel's TV service is "razor thin," adding: "We did hold off on launching our product for many months out of concerns for the economic viability of the offering due to the costs of bandwidth."
However, he said that, while launching the product was a risk, the company took it due to customer demand, "and our desire to offer a complete bundle won out."
WHAT WE WATCH
In 2013, there were 11.9 million television subscribers in Canada – two-thirds of whom were cable customers, with 22 per cent using satellite providers and 12 per cent using IPTV.
Now entering the picture are new video-streaming services from Rogers, Shaw and Bell that require some level of secondary subscription. To access Shomi you must also be a television or Internet customer of Shaw or Rogers. Cravetv, which launches Thursday, requires users be Bell, Bell Aliant, Telus OptikTV, Eastlink or Northwestel television subscribers.
About half of rural households have access to both cable and satellite options, while the remainder had access to satellite services only. Those in rural areas, as well as the North, also tend to receive fewer channels than those living in urban centres.
Netflix – $8.99 per month for new subscribers (requires Internet connection)
Shomi – $8.99 per month (must be Shaw or Rogers TV or Internet customer, requires Internet connection)
Cravetv – $4 per month (must be Bell, Bell Aliant, Telus OptikTV, Eastlink or Northwestel television subscriber)
iTunes – One-time fee per movie rental (requires Internet connection)
Cineplex Store– One-time fee per movie rental (requires Internet connection)
YouTube, Vevo, Vimeo – Watch music videos and viral clips on these ad-supported services for free (requires Internet connection)
Local broadcasters such as CBC, CTV, Global and City broadcast their signals over the air, allowing anyone with an antenna within range to access the content for free.