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Telcos make assault on cable's stranglehold Add to ...

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.

The cost

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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