Cogeco says high-speed Internet upgrade not necessary

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As telecom companies across Canada wage a new marketing battle over super-high-speed Internet, Cogeco Cable Inc. is content to watch from the sidelines – at least for now.

The race to upgrade broadband Internet networks to enable gigabit-per-second download speeds has intensified in recent months as telephone companies BCE Inc. and Telus Corp. announced plans to expand their fibre-optic infrastructure and eventually offer gigabit services in Toronto (BCE), Edmonton and Vancouver (both Telus). As part of the rollout of its "Gigabit Fibe" service, BCE started offering download speeds of up to 940 megabits per second this summer in parts of Toronto in as well as other cities in Ontario, Quebec and Atlantic Canada.

Meanwhile, cable operator Rogers Communications Inc. said in early October it would start offering gigabit download speeds in parts of Toronto later this year and expand to the entire area it serves next year.

Atlantic Canada's Eastlink also said it will start offering gigabit speeds to residential customers beginning with Halifax in November.

Louis Audet – chief executive of Montreal-based Cogeco, which offers television and Internet services in parts of Ontario and Quebec through its Canadian cable business – said Thursday his company is "fully capable of bringing 1 Gb per second … [but] right now we don't think it's necessary.

"But if it ever does become necessary, it's relatively easy for us to do that and far less expensive than what our competitors are trying to do," he said, later adding, "Really it's a matter of bragging rights at this stage, isn't it?"

Analysts say there is a big difference in the costs telephone companies must incur to install fibre that goes directly to customers' doors (known as fibre to the home or FTTH) compared to what their cable-company rivals need to spend to upgrade. That's because cablecos can get faster speeds out of their existing copper-wire infrastructure by migrating to newer versions of DOCSIS (data over cable service interface specification) technology.

Rogers executives said last week they estimate it will cost less than $50 per household on average for the company to upgrade its entire footprint to DOCSIS 3.1. They also noted that they have been able to deliver gigabit speeds with their existing DOCSIS 3.0 technology.

"We would probably have comparable capex investment figures," Mr. Audet told analysts on a conference call Thursday to discuss Cogeco's quarterly earnings.

Management at Calgary-based Shaw Communications Inc. also referenced the "cable advantage" during an earnings call last week. (Shaw has not announced any product launches related to gigabit Internet, but says it plans to "deliver DOCSIS 3.1 in 2016.")

Telephone companies, meanwhile, face a much higher bill to upgrade their legacy networks to fibre. Phillip Huang, an analyst with Barclays Capital, estimated in a report earlier this month that it will cost BCE an average of between $1,700 and $2,000 per home to bring fibre service right to a customer's door.

As consumers change the way they watch television, cable subscriptions have been declining even as telcos' IPTV (Internet protocol television) services have been winning new customers. With more viewing switching to the Web, broadband Internet has become a key battleground.

Following Rogers's gigabit Internet announcement, Scotia Capital analyst Jeff Fan said that while most customers do not currently need speeds that fast, "it is important, from a marketing standpoint, to continue to be perceived as a provider of the fastest available service."

Cogeco reported its fourth-quarter results on Wednesday after markets closed, reporting consolidated revenues of $520.4-million from its Canadian and American cable operations as well as its data centre and enterprise services business. That was up 6.2 per cent from last year and in line with analyst expectations.

Profit for the quarter was $78.0-million, or $1.59 per share.

"Subscriber results were better than expected," said Macquarie Capital's Greg MacDonald, noting stronger trends in adding Internet customers and losing fewer than expected television subscribers. He suggested that was due to Cogeco's strategy of introducing TiVo set-top boxes to help counter the threat from BCE's IPTV offering.

Editor's Note: This story has been updated to clarify that Rogers said it would offer gigabit services later this year, not immediately, and that BCE began offering download speeds of up to 940 megabits per second this summer in parts of Toronto and other cities in Ontario, Quebec and Atlantic Canada.