Vidéotron still faces challenges despite inroads trumpeted at investors’ conference

Despite the positive news communicated by recently installed Vidéotron ltée president and CEO Robert Dépatie last week at Quebecor Inc.’s first-ever investors’ presentation, the Quebec cable operator still faces major challenges, including a significant expense to convert remaining customers of its antiquated Vidéoway interactive TV service to its digital cable service. "We’re phasing it out, because it’s an old technology," Dépatie told Canadian Communications Reports following the investors’ presentation in Montreal on September 8. "It doesn’t give us the freedom of what the digital TV does…we’re limited to 60 channels. We’re converting slowly but surely. I mean, to convert them will be a big task in terms of capital because we have thousands of Vidéoway boxes still available. But we believe in the next two or three years we should be totally out of Vidéoway." The switchover is capital intensive since Vidéotron is covering the cost of providing Vidéoway customers with new or refurbished digital cable set-top boxes and moving them to its illico digital cable service. It did this swap in the Quebec City market in the fall of 2002 and more recently in the Sherbrooke market. Dépatie said that between 30% and 40% of the 300,000 Vidéoway customers, reached at its peak several years ago, remain to be switched over. Vidéoway customers on the north and south shore of Montreal remain to be converted to digital cable. Dépatie instead spun the positives during his presentation, noting for example that the number of basic subscribers at the country’s third-largest cableco went up during July and August, and suggested it reflected a halt to a previous downward trend (CCR Update, Sept. 10/03). But Vidéotron will have to string several months or quarters of subscriber growth together before the increase in subscribers experienced in the summer months can be considered a trend. Dépatie also boasted that 97% of Vidéotron’s network was bi-directional, making it the most modern of Canadian cable TV providers and capable of offering interactive products, such as video-on-demand (VOD). He told investors that VOD had been rolled out to 92% of its market. But Vidéotron has been in a cost-cutting mode as Quebecor president and CEO Pierre Karl Péladeau prepares for an initial public offering (IPO) of its media properties, including Vidéotron, that are grouped under subsidiary Quebecor Media Inc. It needs to present a better financial picture than the debt-plagued reputation with which it has struggled for two years for the IPO to be successful. The cost cutting has resulted in less investment in its network as a proportion of homes passed when compared to cable giants Rogers Cable Inc. and Shaw Cablesystems, and less spent on marketing to convince people to upgrade to digital cable. Currently, just 14% of Vidéotron customers have taken digital compared to 20% of Rogers customers and 23% at Shaw, according to Decima Publishing Inc.’s latest research on the digital TV distribution market. And while Vidéotron was the first cableco to deploy a personal video recorder (PVR) - and is the only one offering PVR service today - it isn’t pushing the interactive product to create incremental revenue since Dépatie says its price of $699 is too high for the Quebec market. He wouldn’t detail the number of PVRs that Vidéotron has sold. "I would say that it was minimal for one reason and that is the cost of the PVR is currently too high. For that reason we haven’t pushed it. But we know all the research told us that it is a great product…so we’re working extremely hard to find or convince some of our suppliers to drop the price and then being able to take a greater market share. For now though, we’ll keep it low-key." Vidéotron’s struggle to find the money to upgrade its system has also led to battles with its program suppliers over the wholesale rates it pays for channels. In numerous CRTC processes, it has pushed for rate reductions. This stance has led to an unresolved wholesale rate standoff with CTV Inc.’s French-language sports specialty channel RDS.

Vidéotron still faces challenges despite inroads trumpeted at investors’ conference

Broadcast | September 18, 2003

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